Four ETFs To Worry About Following Italy's Debt Downgrade

For today at least it looks like the bad news bulls are in control as most ETF's tracking European Union countries are trading higher. No small feat considering that Standard & Poor's pared its rating on Italian sovereign debt by one notch and kept a negative outlook. The move was somewhat of a surprise as it was widely expected Moody's Investors Service would downgrade Italy first, so there is a good chance another batch of bad news is coming Italy's way sometime soon. Here are the ETFs that may be acting right today, but could be in a for a tumble on more bad news for Italy. Obviously, the iShares MSCI Italy Index Fund EWI will be front an center, but most investors know that, so we made an effort to find a few surprise candidates that Italy could weigh on. IShares S&P Global Financials Index Fund IXG: It has been said that U.S. banks' exposure to Italy, Greece and friends is “manageable” and that could be good news for IXG, which allocates more than 37% of its weight to the U.S. The reality is, on a combined basis, IXG has a lot of exposure to Italy's when adding up the ETF's weight to the U.S., Germany, Spain and others. It may look good today, but this scenario probably won't last long. IShares MSCI European Financials Index Fund EUFN: The iShares MSCI European Financials Index Fund only allocates about 6% of its weight to Italy, but that's enough to tarnish this ETF. Factor in the exposure of other European banks (German, French, etc.) to Italy and it's easy to see why EUFN has one of the ugliest charts out there. Global X FTSE Argentina 20 ETF ARGT: This one is going to surprise some investors, but according to data from ETFdb.com, Italian stocks account for almost 19% of ARGT's weight. That's unfortunate because the Argentina investment thesis is underrated. Italy undermines that positive sentiment though. WisdomTree Europe Small-Cap Dividend Fund DFE: Dividends may attract you to this ETF, but the combination of Europe and small-cap should keep you at bay. Italy is DFE's third-largest country weight at 11.6%. Financials are this ETF's third-largest sector weight at almost 17%. Ugh. When Europe really starts to recover, this will be a great ETF. Until then, pass.