This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Portugal Matters for ETFs

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,, 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.

Single-Country Funds - Monthly

Some were quick to attribute these bumps to investors' fears of a complete fiscal meltdown in Europe, however, many missed the point. The euro plays a key role in these funds; every 1% drop in the euro relative to the U.S. dollar translates into a 1% decline in euro-denominated funds. Even ignoring the impact on the equity markets themselves, the fallout on the euro is cause for concern.

In the international fixed income space, the SPDR International Govt-Protected Bond ETF (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."
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
EZU $31.12 0.00%
EWI $11.07 0.00%
EWG $23.12 0.00%
AAPL $93.99 0.00%
FB $102.01 0.00%


Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs