Editor's note: This piece originally ran earlier today on our newest Premium service, ETF Profits. Click here for a 14-day trial to this exciting product!
Portugal's recent bailout issues are front-page news. Curiously, ETF-focused publications have been largely silent. My own website, IndexUniverse.com, hasn't even covered this news yet.
The reason is simple: There is no ETF pure play for Portugal. The closest you can get is the iShares MSCI EMU ETF (EZU), a broad-based eurozone fund, and it has just 0.84% exposure to Portugal.
But for a savvy ETF investor, what's happening in Portugal is very important.Thursday evening, S&P downgraded Portuguese sovereign debt to BBB (two ratings away from "junk") according to The Wall Street Journal. Fitch followed suite with a downgrade on Portuguese debt to A-. The fallout in the bond space has been immediate. Yields on Portuguese 10-year bonds pushed past 7.8%, while five-year bond yields jumped to 8.3%. These are massive numbers for sovereign debt. Investors are looking past Portugal's insistence that no bailout is necessary and focusing on the fact that $13 billion worth of bond redemptions are due in April and June; a default or bailout is a non-zero possibility. (We've also seen fallout in the euro, which dropped 30 basis points this morning.) Fortunately, we have a roadmap for how this plays out. Fears of European contagion and the measures necessary to bailout Greece and other troubled European Union members sent the euro in a downward spiral last year. The euro's downfall left visible marks on funds that offered exposure to failing member states, including the EU's strongest member state, Germany. iShares' single-country funds like the iShares MSCI Italy Index Fund (EWI) and the iShares MSCI Germany Index Fund (EWG) took 18.9% and 10.5% hits, respectively, by June 6, 2010. (WIP) and the SPDR Short Term International Treasury Bond ETF (BWZ) also dropped 8.09% and 4.28%, respectively, by June 6, 2010, during the last "troubles."
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV