Investing With Polish ETFs
Summary ETFs have provided an alternative investment solution to reduce portfolio volatility and profit off index growth. Recent GDP growth and ECB monetary policy will create long-term opportunities for patient investors. With high unemployment rates and deflationary growth, the short-term environment is less than appealing for investors. With the European Central Bank initiating their Quantitative Easing program on January 22nd, 2015, global markets turned their sights to the European region once again. In the past few years, the 2008 financial crisis left an impression on many, as mounting debt loads and unsustainable government budgets created further instability in the years following the collapse. Amid the media coverage of major economies like France, Italy, and Spain is an Eastern European country that has achieved one of the highest growth rates in recent years, Poland . With the country’s recent 3.2% GDP growth rate, Poland has been able to recover from its recession lows and churn out strong economic output. With that being said, the depreciation of the Euro relative to global currencies in addition to expansionary fiscal policy initiated by the ECB has positioned Poland to benefit from both indirect support in addition to sovereign control over the Zloty. Therefore, for those who are interested in investing in Europe, the Polish economy is among the best options from a growth perspective. Looking at the investment options that are available in Poland, the volatility of the Warsaw Stock Exchange would threaten the stability of any international portfolio. The best solution to reduce volatility while ensuring that investors gain exposure to the Polish economy is utilizing the Polish ETFs available on the market. Investment products like ETFs reduce the risk that investors take on by implementing a passive strategy that mirrors the overall market performance rather than a specific stock. For many investment advisors, the ETF product has become a core component of clients’ portfolios due to their low fees, reduced volatility and effective exposure to profit off macroeconomic performance. Therefore, for investors who are considering exposure to Poland, the following article will analyze the best options available on the market. It is important to distinguish the differences among each ETF product in order to understand how to implement each solution within your overall portfolio strategy. Current Market Before considering any ETF products, investors must understand the relative macroeconomic stability Poland faces in the medium to long term. The current economic environment in Poland is relatively stable, with strong GDP growth compared to larger economies like Italy and France. For investors who would like to know more about the economy and political environment, my macroeconomic report on the country provides a great place to start your research on the country. Looking at the last quarter, Poland reported 3.2% GDP growth in Q2 while inflation declined by 33% to -0.8% in the month of September. Fundamentally, the economy has performed very well in the past few years as Poland continues to recover from the 2009 collapse. Compared to other European countries, the nation has exceed expectations due to strong industry growth and foreign investment. The reason behind this above average growth can be partly explained by the recent ECB stimulus that was initiated at the start of 2015. While the larger economies like France, Italy, and Spain will receive much of the monetary support due to their core importance to the stability of the European region, countries like Poland will also see a direct benefit. With negative inflation, the influx of money into European markets after the announcement of the ECB program resulted in smaller countries seeing a larger increase in foreign funds. For Poland, funds from neighboring countries in addition to support from Asia and North America increased as the country continues to benefit from cheaper imports as the Euro depreciates relative to the Zloty. In the past 10 years, FDI increased by 105% which resulted in higher economic development as industrial production has continued to increase and pushed capacity utilization upwards. In the past year, business confidence increased by 8% as the economy continued on this upwards trajectory. When looking at the overall state of the economy, higher levels of education, increased regulation, and the overall increase in FDI due to EU membership has helped the Polish economy recover strongly from the 2009 collapse. Investors should be aware of the problems relating to pricing growth primarily due to the negative inflation rate seen in the past year. While deflation is always a concern, Poland is still at an advantage relative to neighboring EU members due to its sovereign control of the Zloty. Overall, when looking at the economic growth in the region, investors must be aware of the key factors affecting the nation’s output. While GDP growth is among the highest in the EU, the nation’s poor pricing growth could be limiting for smaller companies who are unable to raise prices to increase production and support economic output. (click to enlarge) ^Sourced from Trading Economics Possible Investment Opportunities For interested investors, the top three ETFs that would provide ideal exposure to Poland are the iShares MSCI Poland Capped ETF (NYSEARCA: EPOL ), the SPDR S&P Emerging Europe ETF (NYSEARCA: GUR ), and the Market Vectors Poland ETF (NYSEARCA: PLND ). When looking at the options available on the market, two key questions are: (1) Which option should investors choose? (2) At what time should these ETFs be implemented into their portfolio? In the following analysis, I will answer these questions by analyzing the holdings of each product and relative stability of each equity to help investors determine how these investment products can be used. (click to enlarge) ^Author’s Own Work iShares MSCI Poland Capped ETF (click to enlarge) ^Sourced from Google Finance The iShares product is among the most known ETF solutions on the market. The Poland iShares product is the largest of the three considered in this analysis, with around $206.52 million in net assets. The equity has a 97.49% asset exposure to Poland and has performed relatively poor in the past year with a 18.01% decline yoy. Looking at the product’s holdings, the ETF is 43.84% exposed to the Polish financial sector which indicates that any economic moves will be mirrored by the ETF’s performance. Surprisingly, during my research, I came across another important correlation, the iShares product has a correlation coefficient of 0.2614 to the price of oil (range is -1 to +1, +1 is direct relationship). Although only 15.58% of holdings are exposed to the energy sector, investors are able to distinguish a relationship between the commodity and the ETF. I will use the iPath S&P Crude Oil Total Return Index ETN (NYSEARCA: OIL ) to replicate the price movements of the commodity in order to delve into this correlation and consider whether the fund volumes are close enough to indicate a direct relationship in the movement of the equities. When considering the fund flows between the two products, a correlation coefficient of 0.1486 signals that while price movements indicate a relationship between the two ETFs, the funds’ volumes are not close enough to illustrate any connection in daily liquidity between the two. Looking at the ETF’s top three holdings, Powszechna Kasa Oszczednosci Bank ( OTCPK:PSZKY ) (11.28%), Powszechny Zaklad Ubezpieczen SA ( OTC:PZAKY ) (9.05%), and Polski Koncern Naftowy Orlen SA (8.59%) make up the top exposure to the Polish economy. Powszchna is Poland’s largest bank, with a 17.3% and 17.9% market share in the deposit and loan market. The company has an established market position through a network of 3,100 ATMs and 1,300 branches that serve over 8.9 million retail customers and 14,100 corporate customers. The company operates in the retail, corporate, and investment banking markets, with a total customer account increase of 8% over the past 5 years. The current financial services sector in Poland is quite established so investors who are considering the iShares product should realize that the equity provides dividend income from major financial holdings like Powszechna Bank. Looking at the company’s 2015 H1 results , net profit declined by 19.4% primarily due to the net interest segment that declined by 4% due to lower ECB rates. It is important for investors to understand the effects of the ECB’s policy as many financial institutions will continue to see a decline in interest income as interest rates continue to decline. In Poland the interest rate is 1.5% and was recently lowered from 2% at the beginning of 2015 in an effort to stimulate consumer spending. While consumer confidence has increased due to this lower interest rate, the decline has affected the profitability of major banks like Powszechna. In addition to a decline in net interest income, administrative expenses increased by 24.8% as the company continues to integrate its Nordea Bank Polska acquisition. Overall, when looking at the company and its 14.54% decline yoy on the Warsaw Exchange, the equity will face continued pressure due to the ECB’s expansionary policy which will hurt lenders as the net interest margin declines. The company is also going through a large merger that will continue to increase costs as operations are expected to fully align within the following two years. Looking at Powszechny Zaklad Ubezpieczen (9.05%), the company is the insurance leader in Poland in both non-life and life insurance segments. The company services over 16 million customers through an established domestic network of 413 branches, 9,200 exclusive agents and 3,000 distribution centers. In the current market where interest rates are at all-time lows, insurance providers like Powszechny face pricing pressures. In the insurance industry, higher interest rates provide more favorable fixed income solutions that help the insurance industry continue offering asset management services and competitive solutions. In the current environment, I do not expect rates to increase in the medium term, therefore, competitors like Powszechny offer ideal exposure as an industry leader which will survive this difficult rate environment. Looking at 2015 results , gross written premiums increased by 8.16%; however, with administrative expenses increasing by 17.06%, revenues translated to a net profit decline of 23.18%. As previously stated, the interest environment in the European region has increased the costs to acquire premiums which explains the 9.11% increase in acquisition costs as the insurance environment continued to become more costly. Overall, after considering the exposure of the iShares Poland ETF, investors can be confident that all major holdings in the financial sector are stable in the current environment. The 43.84% exposure to the financial sector leverages the product to the performance of the Polish economy and its related output. When considering the size of the fund and overall performance in the past year, the expansionary policy initiated by the ECB is the primary reason why these banking and insurance holdings have underperformed. With the monetary policy scheduled to end in 2016, the following months should see continued pressure on these financial holdings which should drag down the performance of the product. The long-term benefits of QE can be seen in the US market where the costs of the lower interest rate are offset by the improved performance in the economy and an increase in “big-ticket” purchases. I suggest that anyone considering the iShares product in their portfolio should expect a 3- to 5-year investment horizon in order for the ECB’s QE program to conclude and see an improvement in economic output to offset the declines in net interest margins. SPDR S&P Emerging Europe ETF (click to enlarge) ^Sourced from Google Finance Unlike the iShares Poland ETF, the SPDR S&P Emerging Europe ETF product provides exposure to Eastern Europe through countries like Russia (48.17%), Turkey (19.76%), and Poland (19.41%). The ETF offers more diversification in regards to Polish exposure which is helpful if investors want to bet on regional rather than country-specific growth. In the current market, emerging Europe has underperformed due to lower commodity prices and regional pressures related to the conflict between Russia and Ukraine. This can be seen in Eastern Europe where consumer confidence declined in 2014 as sanctions were placed on the Russian economy. When looking at the 22.18% yoy decline in the SPDR Emerging Europe product, the recent decline in the price of oil and sanctions against Russia (which makes up 48.17% of the fund) resulted in the ETF’s poor performance. Looking at the correlation coefficient between the fund’s price performance and the price of the iPath S&P GSCI Crude Oil Total Return, we get a coefficient of 0.4128 which indicates that there is a strong relationship between the performance of the commodity and the performance of the fund. When looking at the fund from a sector perspective, the top three sectors are Energy (29.9%), Financials (27.66%), and Materials (9.96%). Therefore, when taking into consideration the 29.9% exposure to the energy sector, the strong relationship between the price of oil and performance of the SPDR Emerging Europe ETF signals that any investors considering this product are purely betting on the performance of oil in the medium term. When considering the top three holdings of the ETF, all three companies are Russian based which means that majority of the contribution to the fund’s performance comes from Russian output. However, when looking at the top three Polish holdings: PKO Bank Polski SA (2.35%), Polski Koncern Naftowy Orlen (1.7%), and Bank Zachodni ( OTC:BKZHY ) (1.27%) make up majority of the 19.41% that focuses on the Polish economy. In order to determine whether the limited exposure to the Polish economy is sufficient enough to consider this product, I will evaluate the following three companies to determine their relative stability and outlook for the medium- to long-term performance. PKO Bank Polski was previously covered in the last section under its full name Powszechna Kasa Oszczednosci so I will skip over the company for this part. Polski Koncern Naftowy Orlen is a major Polish oil refiner and petro retailer, with an established network of 2,682 service stations in addition to operations in Canada, Germany, Czech Republic, and Lithuania. Orlen has been rated the most valuable Polish brand for the past 8 years, with over 90% brand awareness in domestic markets, a brand that has increased in intangible goodwill by 52% over the past five years. Looking at the company’s business model, operations are focused on three central pillars – downstream (which includes sales, production, and energy), upstream, and retail. Downstream operations encompass the company’s wholesale, oil refinement, and energy production services which make up around 88.36% of total company sales. The segment has performed incredibly well in the past year and should continue to benefit from lower crude prices as margins expand due to lower input costs. Therefore, when looking at lower operational expenses and increased demand during this low price environment, the downstream segment will perform very well in the short term as the price of crude remains low. Focusing on the company’s upstream segment, ORLEN holds property rights in Poland and Canada, both of these regions contributed to a 20.69% increase in production over the past two years. Due to the low price of oil, capital expenditures were cut by 80.56% and will result in the division reporting significant loses, however, due to the group only contributing around 11% to earnings, the hit will not affect the overall performance of the company. The company’s retail operations saw a yoy increase of 6% in EBITDA as Orlen’s market share increased to 14.4%. I expect further growth in this division primarily due to the established corporate brand that exists in Poland. Looking at the financial results for Q2, the company reported a 23.85% qoq in revenues which translated to a net profit increase of 78.46%. In the current oil environment, management has been focused on deleveraging the company balance sheet by divesting underperforming assets and reducing debt. These efforts can be clearly seen in the last quarter as the company successfully reduced net debt by 27.92% in addition to increasing cash on hand by 173.37% in order to ensure that the company has sufficient financial support to survive the current downturn in the oil market. This effort to reduce debt and increase balance sheet liquidity has resulted in a drop in net financial leverage from 28.9% to 19.8%, well below domestic peers. Focusing on the company’s three segments, downstream operations increased income by 55.26% due to cheaper oil prices which led to increased refining. Unlike the downstream operations that benefited from increased refining, upstream operations reported a 7.14% decline in income as production remained stagnate over the past quarter. Finally, the retail segment also benefited from the decline in oil as service stations reported an overall increase of 21.56% in income primarily due to the increased summer demand and 7-year low prices. From a financial perspective, Orlen performed relatively well in the current oil environment primarily due to increased margins in refining and retail as lower crude prices helped the company refine oil products at a cheaper cost. Conversely, Bank Zachodni is a mid-size bank in the Polish financial industry. Bank Zachodni WBK Group offers brokerage services, asset and investment fund management, leasing, factoring, and a full range of investment products through a network of 769 branches and 1,388 ATMs. Looking at the company’s business model – mortgage, corporate, and personal loans contribute 36%, 25%, and 17%, respectively, to the overall loan portfolio. In the past year, term and retail deposits both increased by 27% and 18%, respectively, as management’s customer acquisition strategy continued to yield results. In addition, personal loans increased by an incredible 46% signally that the bank has successfully increased its market share in the retail segment of the loan market. Similar to many other financial institutions that are feeling pressure from lower interest rates, Zachodni saw a qoq decline of 2% in net interest income as the company saw its net interest margin decline to 3.48%. With the ECB’s expansionary policy increasing the market’s money supply, interest rates are not expected to increase until 2017 which will reduce the profitability of newly issued loans in the future. At the moment, the increase in both loans and income indicates that Zachodni is growing its customer base while profiting from higher margin loans issued before the low rate environment. Once the market settles with the new expansionary policy, the bank will encounter a new barrier as the profitability of loans decreases in the face of lower interest rates, an issue that will be dealt with at a later date. Focusing on Q2 results , due to a lower net interest margin, the company reported a 4.82% decline in interest income in addition to a 17% increase in administrative costs as the company continues to increase its marketing efforts in line with Zachodni’s customer acquisition strategy. Fortunately, with interest expenses declining due to the Santander (NYSE: SAN ) acquisition being finalized, the company reported an adjusted net profit of +13% yoy. In conclusion, after considering the top three polish equities in the SPDR product, I am uncertain the product would offer sufficient exposure to the Polish economy to warrant an implementation in such an investment strategy. The Polish holdings in the fund are very strong and will yield strong returns over the short term as crude remains relatively stable; however, the 19.41% weighting does not strongly influence the overall performance of the product. I suggest that anyone considering the product should focus on the fund’s relationship to the price of oil as the key determinant to portfolio implementation. Market Vectors Poland ETF (click to enlarge) ^Sourced from Google Finance The Market Vectors Poland ETF is the smallest fund of the three available ETFs with a fund size of $19.25 million. Similar to the iShares Poland product, the ETF’s overall weighting to the Polish economy is 96.03% with a strong P/B ratio of 1.07. Looking at the equity’s relationship to the performance of the Vanguard FTSE Europe ETF (NYSEARCA: VGK ), investors can see an extremely strong correlation with a coefficient of 0.6525. What this means is that the product strongly follows the performance of the overall European sector. Compared to the iShares or SPDR products, the Market Vectors Poland ETF is truly a play on European growth which can be seen in the strong correlation coefficient. When looking at the ETFs top three sectors of exposure, Financials (41.3%), Energy (14.8%), and Utilities (13.5%) define the product’s direction. From a sector perspective, the product remains similar to the iShares ETF; however, unlike the iShares, the Market Vectors Poland ETF is more volatile which can be beneficial for any investors who has a shorter term perspective on European markets. Therefore, when determining how the Market Vectors product can be used, I suggest that investors who would like leveraged exposure to European growth would benefit from holding this ETF in their portfolio. When comparing the holdings and exposure that the Market Vectors product provides, many investors would find numerous similarities between this and the iShares Poland ETF. While the fund size does provide a difference in volatility and portfolio use, I would like to focus my attention on three holdings that are unique to the Market Vectors product and would provide a difference in how the fund performs in the long term. The ETF holds KGHM Polska Miedz SA ( OTC:KGHPF ) (6.19%), Orange Polska SA ( OTC:PTTWF ) (4.7%), and Jeronimo Martins SGPS SA ( OTCPK:JRONY ) (4.41%) which all provide growth opportunities in the following years. The high financial exposure that the fund holds could provide some difficulty in outperforming the market in the following year as the ECB’s QE would reduce the profitability of banks and insurance companies. Thus, when looking at holdings like the three above, the fund may be able to offset this underperformance and benefit of these growth plays. KGHM Polska Miedz is Poland’s major copper and silver producer with operations in Canada, Chile, Peru, and the United States. The current pricing environment for both silver and copper have been difficult for companies like KGHM; however, when looking at the medium term, I do expect a rebound in prices in the following three years. For now, when considering a company like KGHM, investors must understand that these major industry players will evolve in the following years as the industry consolidates and focuses on the top companies like KGHM. The company reports suggest that as the Federal Reserve increases interest rates in the following years, commodity prices denominated in USD will recover which should be beneficial as KGHM increases capacity levels closer to 100%. Focusing on the company’s operational results in the past year, the recent completion of the Sierra Gorda mine in Chile in June should have a strong impact on copper output as the mine commenced at around 65% capacity. In addition to the mine’s completion, the local Port of Antofagasta also saw its upgrades finish as the port is expected to manage over 131 thousand tones of dry-weight concentrate over the next year. These operational upgrades will lead to over $1 million in cost savings on a monthly basis. From a financial perspective, while sales revenue declined by 1%, positive currency translations due to the strong USD in addition to operational upgrades that resulted in lower expenses translated to an 8% increase in profits. One of the benefits that comes with operating in the Polish market is that KGHM benefits from positive currency translations between the US Dollar and Polish Zloty as the 11.09% depreciation in the Euro increased reported revenues in Zloty terms. When looking at the price of copper in USD, the USD/T declined by 14% yoy; however, in Zloty terms, the PLN/T increased by 4%. Therefore, when looking at the overall operational environment, while at the initial sale of the product KGHM sees a decline in revenue, after the translation, the strength of the USD results in the company actually reporting a growth in income. Overall, with production increasing by 2% and costs declining by 0.2%, I expect the company to perform strongly in the medium term as positive currency pressures will support income growth. Telekomunikacja Polska is now known as Orange Polska due to the 50.67% controlling stake owned by Orange SA (NYSE: ORAN ). The company operates in the mobile, fixed, and online segments and provides services to over 26 million customers. Looking at the revenue breakdown, mobile voice, data/messaging, and fixed voice make up 22.64%, 15.77%, and 14.74% of revenue which ensures diversification. In the past year, capital expenditures increased by 6% in an effort to improve the infrastructure for Orange’s mobile service offerings, the fastest growing segment. Looking at the numbers, mobile data grew by 120% over the past year primarily due to a 24% increase in mobile customers. The segment has become the growth driver for the company and with market penetration continuing to increase in the following years, investors should look to the mobile group for revenue growth. From a financial perspective, the 2.3% decline in group revenue was partly due to the decline in fixed voice services as consumer shift from fixed line to mobile. Fortunately, when focusing on the 35.46% increase in mobile equipment sales in addition to the 6% increase in post-paid customers, I expect that revenue will recover in the following year as additional marketing efforts increase customer reach. Looking at the Polish market, with monetary policy increasing the money supply across the European region, I expect some indirect benefits in the medium term as expansionary fiscal policy stimulates business growth. Overall, the Orange Polska holding will benefit the Market Vectors product due to its stability in earnings and the indirect support that comes from the ECB’s monetary policy. Conversely, looking at Jeronimo Martins SGPS, the company is actually based in Portugal; however, it has major operations in Poland which allows for significant exposure to the Polish economy. Jeronimo Martins Polska, the Polish subsidiary, is the second largest company in regards to turnover in addition to being the leader in food, retail, and pharmaceutical distribution. Unlike the iShares product, the Market Vectors Poland ETF holds Jeronimo Martins and benefits from consistent equity growth from a core player in the food industry across Poland and Portugal. As of January 2015, the Polish group had a network of 3,094 stores and 15 distribution centers reaching approximately 2.26 million m₂ in sales area, the largest store space for a food retailer in the Polish market. Looking at the overall business model, the company operates in the food distribution, manufacturing (tea, detergents, ice cream, etc.), and service sector (marketing and restaurants) which ensures a vertical integration strategy for many of its primary operations. Looking at the group’s overall performance, net sales increased by 9.8% as the company continued to see an increase in consumption across stores in Portugal and Poland. Unfortunately when looking at overall expenses, the 12.08% increase in operating costs resulted in net profits growing by only 2.41%. In 2014, the company had announced that the balance sheet would be deleveraged in the following months which resulted in a 36.41% decline in net debt yoy. Focusing on financial results for the Polish subsidiary (82.6% of revenues for the whole company), the recent decline in the Euro versus the Zloty resulted in a positive 11.7% increase in group sales. In addition to positive currency translations, the opening of 83 new stores contributed to the overall sales growth as the country continues to face pressures from declining food inflation. In the following year, management has expressed their desire to continue expanding its store network and focus on urban/non-urban formats and more efficient layouts in order to protect margins. In the face of negative food inflation, the Polish group has continued to perform by increasing market share by 2.3% in the last quarter and reducing costs to protect margins. While the company itself is based in Portugal, with over 82.6% of food distribution revenues coming from Poland, the exposure provided in Jeronimo will help the Market Vectors Product benefit from any growth in household consumption or any recovery in food inflation. Overall, while major holdings remain similar to the iShares product, the Market Vectors Poland ETF is exposed to several unique equities which allow the company to benefit from the current ECB program. I am confident that for those who are bullish on the European recovery in the medium term, this product offers the necessary leverage to help investors profit off growth. In Conclusion (click to enlarge) ^Author’s own work After evaluating the three ETF products and touching upon major holding that each fund is exposed to, I would like to provide a final comparison in order to help investors find the solution that works for their strategy. In the current market, the Polish economy remains one of the strongest from a GDP growth perspective; however, weaknesses in inflation does limit the amount of growth seen in margins. For this reason, while economic output does benefit the overall confidence in the economy, pricing growth needs to recover in order to see any substantial move in these ETF solutions. In addition to limited inflation, lower interest rates and an increased money supply will reduce the net interest margins that banks profit off. For the iShares MSCI Poland Capped ETF and the Market vectors Poland ETF, both solutions offer more than 40% exposure to the financial sector which could be a problem in the short term. However, similar to the Federal Reserve’s QE program, after several years of expansionary policy which forced rates down and reduced banking profits, the eventual increase in consumer consumption offset the margin decline and pushed profits up. For this reason, when deciding between the three solutions, investors must realize that the iShares and Market Vector solutions require a longer investment horizon to truly benefit from the ECB’s QE program. On the other hand, the SPDR S&P Emerging Europe ETF provides only around 27.66% exposure to the financial sector which reduces the influence that lower rates will have on major financial holding. For the SPDR product, the 0.4128 correlation coefficient to the price of oil indicates that price movements are more influenced by the price of the commodity rather than the economic performance of Europe. For this reason, when utilizing the SPDR product, investors are betting on the price of oil rather than the economic growth in Poland. In regards to the fund size, the three solutions are vastly different in their worth of net assets with the iShares product coming in at $206.52 million versus the Market Vectors with only $19.25 million. It is important to consider the total net assets of an ETF in order to determine the overall strength of the product in addition to the confidence that shareholders have in the relative performance of the ETF. In this case, when comparing the iShares product to the SPDR ETF and Market Vectors fund, investors are able to clearly see a difference in the size of the funds and the relative confidence investors have shown in each solution. In addition, relative to larger funds, periods of high market volumes increase the price volatility of smaller solutions like the SPDR Emerging Europe and Market Vectors ETFs due to the relative size of the bids and overall inflow and outflow of funds. Investors must ask themselves whether the increased volatility is something that can be implemented in their portfolio in regards to their overall position on the Polish market. In my opinion, investors who would like to use the smaller funds like the SPDR Emerging Europe and Market Vectors Poland ETF will do well during bullish legs of the market as fund inflows will reduce the amount of price volatility. For convenience sake, going with the much larger iShares product is the best option as the large fund has shown strength during this downturn and will benefit from fund inflows as European markets turnaround. (click to enlarge) ^Sourced from Google Finance When considering the overall performance of each ETF, all three solutions have declined in the past year due to the poor economic performance of Europe and the decline in the price of oil. Looking at the investment horizon for each product, the iShares Poland ETF remains a solution for the medium to long term as major financial holdings will benefit the fund in the long term as the European economy recovers and consumption increases. The SPDR Emerging Europe fund should be utilized as a short-term “tradable” solution due to its higher volatility relative to the other ETFs. In addition, going long or short this ETF is purely betting on the price of oil as all major holdings are in the energy sector. Finally, the Market Vectors Poland ETF is a much smaller version of the iShares product and provides some unique holdings that should benefit from consumption growth in the short term. While major holdings do remain similar to the iShares portfolio, smaller positions in the telecommunications and retail sector provide better growth exposure in the medium term. Regardless of the product investors select, the current underperformance of all three solutions provides investors a chance to build long-term holdings. If the macroeconomic outlook remains positive and a recovery in inflation does occur, the strength of the Polish market should benefit all three ETFs. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.