The situation in Greece, and the rest of the European Union, puts a question mark over ETFs with significant European bank stock holdings.
Many banks in Germany, France and the UK having significant exposure to Greece and other troubled European economies. Analysis by Standard & Poor's ETF analyst, Ken Leon, highlights ETFs with significant European bank stock holdings.
According to the report, the largest ETF with exposure to Europe, as reported on June 23, 2011, is iShares MSCI EAFE Index Fund. As a percentage of total holdings, EFA's exposure to the financial sector is 22.65%, and to the diversified banks sub-industry 12.04%, which is where there is direct exposure to the Greek crisis. This ETF is made up of 952 holdings that replicate the EAFE Index. The Vanguard MSCI Europe ETF has total assets of $3.6bn. As a percentage of total holdings, VGK's exposure to the financial sector is 21.29%, and to the diversified banks sub-industry 11.40%. This ETF is made up of 480 individual holdings that replicate the MSCI Europe Index.
There are two additional ETF securities tied to European equities worth noting. They are iShares S&P Europe 350 Index Fund and iShares MSCI EMU Index Fund. These securities have total assets in the $1.2 bn to $1.4 bn range and comparable financial sector weighting exposure near 22%, with diversified banks at 11% to 12%.
"The potential sovereign risk of default in Greece has led most economists, in our opinion, to be more conservative about the outlook for Europe. Regulators are also mandating higher capital reserve requirements for major European banks as a result of the past financial crisis. We believe this policy action along with select banks having above average lending exposure to Greece presents some additional risks for investors," according to the report.
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