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 emergingmoney.com
