Getting the best of the handful of Central Europe funds (EPOL, PLND, ESR, GUR)

The universe of ADRs and ETFs covering the region is fairly limited. The Polish equity market stands out with the most volume and attracts a great deal of money to its IPO sector surpassing all other European markets in 2011.

Foreign investors in the Polish market should hedge the currency risk exposure either directly with a short position in the zloty or by using a currency fund.

The SPDR S&P Emerging Europe ETF (GUR, quote) tracks the S&P European Emerging BMI Capped Index, which is a market capitalization weighted index. The fund has an expense ratio of 0.59% and about $114 million in assets.

Russia’s weight in the fund is 64.2% and exposure to the CEE region of 18.1%. Individual country weights are  Poland (10.9%), Czech Republic (4.25%) and Hungary (2.95%), with a significant exposure to Turkey (13.9%).

Sector exposure includes: energy (39.3%), financial services (18.8%) and basic materials (12.2%). 

The MSCI Emerging Markets Eastern Europe Index Fund (ESR, quote) has an expense ratio of 0.69% and about $27 million of assets. The main difference concerning regional exposure between GUR and ESR is that the latter has no exposure to Turkey.

Russia’s weight in the fund is 71.5% and exposure to the CEE region is 24.4% of funds holdings with Poland, the Czech Republic and Hungary accounting for 16.6%, 4.3% and 3.5% respectively.

Sector exposure includes: energy (43.9%), basic materials (14.32%) and financial services (8.45%). 

The two Poland-specific funds differ significantly in size and to some extent, in sector focus.

The MSCI Poland Investable Market Index Fund (EPOL, quote) has assets of $126 million and an expense ratio of 0.61%.

Sector exposure includes financial services (37.1%), basic materials (16.5%) and utilities (11.8%). The top three holdings of the fund are PKO Bank Polski S.A. (11.6%), KGHM Polska Miedz (10.4%) and Powszechny Zaklad Ubezpieczen (PZU) S.A. (10%). 

The Market Vectors Poland Fund (PLND, quote) tracks the Market Vectors Poland Index, which is a diversified index consisting of at least 25 companies either headquartered in Poland or deriving at least 50% of their revenues from the country. It has an expense ratio of 0.6% and has assets of about $41 million. Sector exposure includes financial services (34.5%), utilities (13.6%) and basic material (12.9%). 

The short term may favor theEPOL with its higher concentration in basic materials and commodity prices while longer-term appreciation may be likely in PLND due to higher growth in utilities.

By Emil Emilov for

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