Spain Offers Attractive Discounts on Asset Purchases Alongside Reasonable Economic Growth
The iShares MSCI Spain ETF (EWP) and the SPDR S&P 500 ETF (SPY) present distinct sector allocations and performance profiles, shaping their long-term return potential.
The EWP has a significant 15% allocation to consumer discretionary and industrial sectors, mirroring Spain's industrial revival and growth in consumer goods and innovation sectors. This emphasis positions Spain as a potential European growth leader. In contrast, the SPY, tracking the broad U.S. market, has a diversified sector allocation, but specific percentages were not provided in the search results.
Spain’s equity market, as tracked by the EWP, is currently undervalued with a price-to-earnings (P/E) ratio of about 12.22, significantly lower than the U.S. market’s P/E of 26.51. This undervaluation, combined with steady GDP growth of roughly 2.8% year-on-year, suggests the Spanish market is well-positioned for a resurgence and offers a compelling risk-reward opportunity.
The SPDR S&P 500 ETF has returned positively in recent periods, with a 2.89% return, although exact comparative periods and figures are limited.
The EWP's sector concentration in industrials and consumer discretionary aligns with Spain's ongoing economic revival, suggesting potential for above-average growth as Spain captures a greater share of European industrial momentum. The relatively low valuation enhances the possibility of capital appreciation over time. In contrast, the SPY represents a more mature and widely followed market with higher valuations, which may imply more moderate, stable growth but potentially lower upside compared to undervalued international markets like Spain.
In summary, the iShares MSCI Spain ETF's focus on Spain's revitalizing industrial and consumer sectors, combined with its attractive valuation, offers strong long-term return potential, especially if Spain continues its economic momentum. The SPDR S&P 500 ETF provides broad, stable exposure to the large-cap U.S. market with steady but potentially more modest returns given higher current valuations. Investors' choice between these ETFs depends on their appetite for growth versus stability and geographical diversification.
The EWP's earnings are expected to grow by about 5.5% annually, after the one-off impact of lower interest rates. However, its earnings growth may be muted due to its value tilt, with the Information Technology sector underweight. The EWP is heavily exposed to the Financials and Utilities sectors, which together account for 63.26% of its assets. The ETF's payout ratio stands at about 35%, leaving a healthy 65% retention ratio for future earnings growth.
The EWP offers a total expected return of about 14% in Euros, while U.S. investors may see a return closer to 15-16% in U.S. dollars. The ETF has a significant overweight position in the Financials sector and a higher expense ratio of 0.50%, which is higher than the SPY's 0.0945%. Despite these factors, a Buy rating is warranted for EWP due to its undemanding current valuations and future return outlook.
- Technology, as a significant sector in many economies, could be an area for potential growth in Spain, given the EWP's slight underweight due to its focus on industrials and consumer discretionary sectors.
- Healthcare, being a key sector in the U.S. market represented by the SPY, might offer more stable returns due to its mature and widely followed nature, in contrast to the potentially above-average growth opportunities in Spain.
- Real estate and finance, being heavily represented in the EWP, might provide a steady income stream due to the ETF's high exposure to the Financials sector and its payout ratio of about 35%. In comparison, the SPY, with its diversified sector allocation, may offer more moderate returns from these sectors. Investing in either ETF could also come with differing returns depending on the investor's currency, as the EWP offers a total expected return of about 14% in Euros compared to potential returns of 15-16% for the SPY in U.S. dollars.
