ETFs rejigged as FTSE Russell’s upgrade of Poland takes effect

Sep 24th, 2018 | By | Category: Equities

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The upgrade of Poland to developed market status by FTSE Russell has taken effect. With the upgrade, Poland is classified as one of the 25 most advanced global economies and as such features in developed market indices calculated by the index provider.

Warsaw Stock Exchange

Poland is the first country from Central and Eastern Europe to be assigned Developed Market status..

Thirty-seven Polish companies have now acceded to relevant geographic developed market indices that are part of the FTSE Global Equity Index Series.

Poland becomes the first country in almost a decade to be upgraded into the upper-most echelons (after Israel), and the first Central and Eastern European country to be assigned Developed Market status.

FTSE Russell first announced the upgrade following a review of its global equity index series in September 2017.

ETFs affected by the upgrade in Europe include the Vanguard FTSE Emerging Markets UCITS ETF (VFEM LN), which has sold out of its Polish stocks, and the Vanguard FTSE Developed Europe UCITS ETF (VEUR LN), which has added them. Together these ETFs house some $3.5 billion in assets.

In the US, the upgrade has impacted the $72bn Vanguard FTSE Developed Markets ETF (VEA US), the $59bn Vanguard FTSE Emerging Markets ETF (VWO) and the $17bn Vanguard FTSE Europe ETF (VGK), among others.

The upgrade of Poland to developed status is an acknowledgement by FTSE Russell of the progress of the Polish economy and the country’s capital markets. Key considerations in achieving developed market status include secure trading and post-trade services, advanced infrastructure and high standards of corporate governance and disclosure requirements.

“Poland’s promotion today to developed market status within FTSE Russell’s global equity benchmarks is a significant achievement,” said Reza Ghassemieh, Chief Research Officer, FTSE Russell. “The Polish Ministry of Finance and the Warsaw Stock Exchange have long been committed to improving Poland’s capital markets infrastructure and strengthen its economy and today marks the culmination of their efforts to meet the rigorous criteria needed for this classification.”

Marek Dietl, President of the Warsaw Stock Exchange, added, “The dynamic development of the Polish capital market has led to its upgrade to Developed Market status, which represents a fundamental change in the perception of Poland among global investors. Poland’s reclassification will spark the interest of new investors in Polish issuers and open enormous opportunities for the entire capital market. I do believe that in the long term it will attract bigger capital inflows to [the exchange].”

The upgrade of Poland is expected to result in increased capital market flows as the country’s stocks fall within the mandate of a wider range of investment funds, some of which are only permitted to invest in developed market equities.

“We used to have access to 12-13 percent of the global investment cash pool and now, from September, we will have access to 100 percent,” said Dietl. “However, the reorganisation of investment portfolios following the FTSE Russell decision will take a few years.”

Investors looking to capture any potential price upside from increased trading in Polish stocks can gain pure-play exposure via ETFs. Options include products provided by BlackRock and Expat Asset Management.

The largest of these is the iShares MSCI Poland UCITS ETF (SPOL LN), which has some $90 million in AUM and comes with a TER of 0.74%. It tracks the MSCI Poland Index which covers 85% of the country’s total market cap through 22 constituents.

Expat’s product, the Expat Poland WIG20 UCITS ETF (PLX GY), provides exposure to the WIG20, the main index of the Warsaw Stock Exchange. It is listed on the Bulgaria Stock Exchange and Deutsche Börse and comes with total operating expenses of 1.38%.

FTSE Russell is not the only index provider to have upgraded Poland from emerging market to developed status. Stoxx has also upgraded the country, meaning it is now included in the Stoxx Europe 600, a well-known reference for the European developed markets region. Eight Polish stocks were initially included as part of the European equity index.

The largest ETF in Europe to track the Stoxx Europe 600 is the iShares Stoxx Europe 600 UCITS ETF (SXXPIEX GY) with €6.3bn in AUM. Its TER is 0.20%.

Lyxor offers the cheapest access to this index via its Lyxor Stoxx Europe 600 UCITS ETF (LYP6 GY) which costs just 0.07%. Its AUM is €1.5bn.

Poland remains classified as an emerging market by MSCI.

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