A Promising PIIGS ETF

Last year, the iShares MSCI Ireland Capped ETF EIRL got the bulk of the positive attention afforded to exchange traded funds tracking the PIIGS economies and deservedly so. EIRL, the lone Ireland ETF, surged nearly 23 percent.

None of the other four single-country ETFs tracking PIIGS nations were even in EIRL's ballpark in terms of 2015 performance. Actually, just one of those four managed to finish the year higher. That honor goes to the iShares MSCI Italy Capped ETF EWI, which climbed 3.1 percent last year. Now, some analysts think the Italian economy, the Eurozone's third-largest, is primed to continue recovering this year and that Italy could be a better bet than Spain.

"In the last quarter of 2015, ETFs with equity exposure to Spain saw $362m of consecutive outflows occur. This was while ETFs with equity exposure to Italy, despite a large outflow of $190m in December, had net inflows of $167m over the same period," said Markit in a recent note. "Investors who followed this rotation would have already benefited, even just two weeks into the year. While both regions have fallen along with global markets, Spanish equities have underperformed by 1.9% year to date compared to the Italian Index."

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Inflows to Italy ETFs are noteworthy, but it must be noted EWI is far from a free lunch. In the seven-year period ending 2015, the largest Italy ETF rose on an annual basis just four times. EWI's three-year standard deviation of 20.4 percent means the Italy ETF is slightly more volatile than its Spain counterpart and nearly 500 basis points more volatile than the iShares MSCI Eurozone ETF EZU.

Additionally, EWI is levered to changes in oil prices by way of its 11.7 percent weight to Eni SpA E, the ETF's second-largest holding. Overall, energy is EWI's third-largest sector allocation at 15 percent with financial services and utilities combining for over 56 percent of the fund's weight.

For EWI's primary Spain rival, the iShares MSCI Spain Capped ETF EWP, a potential catalyst for upside exists: Short covering of Spanish stocks.

"Average short interest for constituents of the Spanish IBEX Index spiked higher during 2015, reaching a high of 3.3% and is currently hovering near 3.0%," according to Markit.

EWP is down nearly 15 percent over the past year while EWI is higher by 2.1 percent over that period.