Will The Luck Of The Irish ETF Continue?

By Eric Dutram

While the European debt crisis is far from over, many investors are breathing a sigh of relief over latest events in the ongoing debacle. Greece has managed to stave off a broad default time and time again, managing to slice budgets to the bone despite wide spread protests across the country. Yet although popular opposition may be running high, Greece continues to slowly crawl along, avoiding a messy and disorderly default at all costs.

This trend has been great news for the rest of the PIIGS bloc as well, boosting sentiment across these troubled nations. In fact, 10-year Italian government bond yields have plunged from about 7% at the beginning of the year to their current level below five percent. Beyond boosting bond prices, this has also helped to send stock prices of many troubled euro zone members sharply higher with funds tracking the region adding more than 10% on the year (read German ETFs On The Rise).

Of particular interest to investors should be the performance of Ireland and how the country has rebounded as of late. In fact, the main Irish ETF, EIRL, has added more than 18% in year-to-date terms, crushing the ETF performance of fellow PIIGS members Italy and Spain while also beating out the broad euro region fund as well.

This could be great news for investors seeking to make a play on the Irish market as it could signal that recent events in Greece could trickle down into the rest of the group. Since Ireland, along with Portugal, are arguably the most in trouble of the subset outside of Greece, they stand to benefit the most from declining fears in the region. Thanks to this, it could be the time to take a closer look at investing in Ireland should their good luck continue (see Three ETFs With Incredible Diversification).

Ireland ETF In Focus

Currently, investors have only one way to play the Irish market in ETF form, the aforementioned iShares MSCI Ireland Capped Investable Market Index Fund (EIRL). The product tracks the MSCI Ireland Investable market 25/50 Index which looks to be a benchmark of the top 99% of market capitalization of equity securities listed on Irish stock exchanges.

Currently, the fund charges 53 basis points a year in fees although it has weak volume and AUM as these figures come in at roughly 9,000 shares a day for volume and under $8 million for assets. This produces relatively wide bid ask spreads which can add to total costs for the product. However, the annual yield does come in at roughly 1.8% suggesting it could be a decent choice for those seeking income (read Five Cheaper ETFs You Probably Overlooked).

In terms of holdings, EIRL has 21 securities in total with a heavy focus on three sectors which each make up about 25% of assets; basic materials, consumer staples, and industrials. Beyond this, health care firms also make up about 13% of assets, while single digit allocations to financials and consumer discretionary firms round out the rest of the fund.

With this focus, the fund has a tilt towards blend securities while growth and value each make up about 22% of the product as well. Beyond this, investors should note that the fund is well spread out across market cap levels as large caps make up roughly 40% of assets, while small/micro cap firms comprise another 40% of the product as well.

Irish ETF Future

The main issue with investing in EIRL is that much of the country’s risk/return profile will be due to factors outside Ireland’s borders. Events in the rest of the PIIGS markets will likely play an outsized role in the performance of this ETF going forward, making the actual conditions on the ground in Ireland less important to the fund than they might have been before the crisis.

Additionally, investors should note that the fund currently sees extremely wide spreads for its bid ask ratio, a factor that could increase the total cost of the fund for many. This could also make the fund difficult to cycle into or out of if more turmoil strikes the EU, suggesting that traders may be disappointed with this fund.

Nevertheless, for investors who expect an eventual positive resolution to the PIIGS crisis, EIRL could be an interesting pick. The ETF has greatly outperformed many of its peers in the group. While it should be noted that the fund was trailing the Global X Greek ETF (GREK) for some time this year, GREK has fallen back and EIRL has resumed its leadership once again. So, for those seeking a more stable play on the group, EIRL could be a quality pick, assuming of course the bailout regime holds and investors continue to slowly return to broad Euro zone investing.