Risks And Rewards With The Ireland ETF

Among single-country exchange traded funds tracking European economies, the iShares MSCI Ireland Capped ETF EIRL often goes overlooked. That's particularly true this year with investors instead focusing on the many Eurozone nations where potentially market-moving national elections are scheduled to take place.

Still, the lone ETF dedicated to Irish equities is up almost 6.4 percent year-to-date, indicating the ETF is dealing with post-Brexit life with aplomb.

The stunning Brexit decision only contributed to an already rough environment for EIRL and Irish stocks, which isn't surprising given Ireland's vital trade relationship with Great Britain. Potentially boding well for EIRL and Irish stocks going forward is a recent spate of solid economic data out of the emerald isle.

EIRL, which is home to $64.1 million in assets under management, tracks the MSCI All Ireland Capped Index and holds 25 stocks. Some economic data points suggest Ireland's economy remains on firm ground.

“However, the final months of 2016 and the start of 2017 have seen rates of expansion return to the strong levels seen prior to the UK’s referendum,” Markit said in a recent note. “New orders rose substantially in each of the manufacturing, services and construction sectors in February, with the rate of growth only fractionally down on January’s one-year high. This fed through to further increases in output across all of the three sectors, and encouraged firms to continue to take on extra staff.” 

While it's logical to expect that a single-country ETF will perform well ahead of or in conjunction with the underlying country's economy, the cyclical nature of EIRL's lineup underscores the point that the ETF should do well as Ireland thrives and likewise be potentially vulnerable if the Irish economy sags. EIRL allocates over 41 percent of its combined weight to cyclical materials and industrial stocks.

Data indicate EIRL's manufacturing exposure is a theme investors should closely monitor going forward.

“Manufacturers are also less bullish around investment decisions going forward, given current levels of uncertainty,” said Markit. “Manufacturing sentiment regarding both employment and capital expenditure is at a four-year low, while a net balance of just +8% of manufacturers expect to raise R&D spending over the coming 12 months. Meanwhile, service providers are more upbeat regarding staffing levels and capex than they were in October.”