Spanish ETFs tumble as parliamentary elections loom

Jun 17th, 2016 | By | Category: ETF and Index News

As parliamentary elections loom in Spain and polls suggest a lack of a clear majority, Spanish exchange-traded fund returns have continued to dive into negative territory.

Source registers 59 ETFs in Spain

As uncertainty around the Spanish election continues Spanish ETFs tumble

Spain has been suffering a political deadlock for months following an inconclusive election in December, which stripped Prime Minister Mariano Rajoy’s centre-right People’s Party of an absolute majority and made his goals of austerity and reform ever harder to implement.

The election in December also raised worries of prolonged political and economic uncertainty, as seen in neighbouring countries like Greece and Portugal.

The Amundi MSCI Spain UCITS ETF (LSE: CS1) is down 14.5% year-to-date and has dropped over 23% in the past year alone, according to data from Bloomberg.

Despite this drop and the ongoing struggle for millions of Spaniards to find full-time and permanent work, Amundi’s ETF (CS1) is actually in the black over three years at 3.55%, representing three years of economic recovery – Spain’s GDP growth was 3.2% in 2015, beating the Eurozone average.

And as resorts start to hire extra staff ahead of the summer tourist season, Rajoy was given a pre-election boost following a large fall in unemployment in May – dipping below four million for the first time in six years. Tourism is incredibly important to Spain’s economy, as unemployment remains at 21%, and one-in-six jobs are in hotels and restaurants, according to the Labour Ministry.

For investors who want to bet on Spain’s continued economic recovery, improving employment and a clear political outcome on 26 June, there are a handful of ETFs that track Spanish equities and bonds.

Amundi’s CS1 costs 0.25% and has gathered €117 million in assets. The ComStage MSCI Spain TRN UCITS ETF costs 0.25% and is down 18.39% in euro terms over one year. Both funds synthetically track indexes with just 25 stocks, with financials at almost 40% of the index.

Tracking a slightly less concentrated index, the db X-trackers IBEX 35 UCITS ETF (DXIBD) costs 0.30% and has €239 million in assets, and is also a large bet on financials at over one third of the fund. The Lyxor IBEX 35 (DR) UCITS ETF replicates the same index at the same price. They are both down more than 16% in euro terms over the last 12 months.

Further uncertainty for these ETFs lies ahead, as surveys show that Rajoy’s centre-right party is likely to come in again at first place, but without a clear majority. Yet polls can be wrong, as was seen in the 2015 UK General Election, and a quarter of Spaniards only made up their mind about the December election in the final week before voting day.

On the fixed income side, the 10-year Spanish government bond yield has crashed from over 7% in 2012 to around 1.5% in June 2016, suggesting these bonds have shed a lot of risk as demand increases and the economy recovers.

Both ETFs on the market that track a mix of shorter and longer dated Spanish sovereign bonds have delivered positive returns over the past year of more than 5% as yields have continued to fall so far in 2016.

The db X-trackers II iBoxx Spain UCITS ETF (XIES) tracks a range of 38 Spanish government bonds, and costs 0.20%. The second option is the iShares Spain Government Bond UCITS ETF (SESP), which has the same annual fee and tracks 37 bonds.

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