Country ETFs – Heavy in Financials

Some of the ETFs for individual countries have high allocations to financial stocks. While this has been good for performance until 2006, it has become a drag on many of these ETFs as financials have been crushed during this bear market. Many bank stocks such as ING, LYG are well off their 52 week highs.

Investing in country specific ETFs makes sense in one way since you get exposure to basket of stocks in that country. On the other hand some of these ETFs are built in such a way that they have heavy concentration in one sector or another. For eg. – ishares’ many country ETFs have over 20% of their assets in financial stocks. Some of them such is the ishares Belgium ETF – EWK have over 50% of their assets in financials. This kind of heavy concentration in financial is extremely risky in times like this. It is possible that if banks take off then these ETFs might sky rocket. But if banks continue to falter, then these ETFs might face even more downward pressure. So an investor has to review the portfolio allocation carefully before jumping into these ETFs.

The weightage for financials for ishare’s country ETFs as of 6/30/08 is listed below:

ishares MSCI Austria Investable Market Index Fund (EWO)
Financials = 36.28%

ishares MSCI Belgium Investable Market Index Fund (EWK)
Financials = 55.77%

ishares MSCI Italy Index Fund (EWI)
Financials = 45.44%

ishares MSCI Netherlands Investable Market Index Fund (EWN)
Financials = 25.71%

ishares MSCI Spain Index Fund (EWP)
Financials = 40.79%

ishares MSCI Sweden Index Fund (EWD)
Financials = 24.34%

ishares MSCI Switzerland Index Fund (EWL)
Financials = 21.96%

ishares MSCI United Kingdom Index Fund (EWU)
Financials = 20.76%

The ETFs for France (EWQ) and Germany (EWG) have less than 20% of assets in financials.

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