ETF Talk: Eastern Europe Offers Potential Escape Route

Years ago, people risked their lives to escape from the tyranny of the former Soviet bloc countries. Now, those same nations may prove to be an effective place for investors to flee from the debt problems cropping up in Greece and other fiscally faltering nations in Europe.

One way for investors to gain exposure to such non-eurozone nations is through the MSCI Emerging Markets Eastern Europe Index Fund (ESR), an exchange-traded fund (ETF) which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Eastern Europe Index. Deutsche Bank recently issued a report that estimated non-eurozone countries, such as Poland and the Czech Republic, will enjoy faster economic growth than eurozone nations.

So far, ESR is showing that such positive views about Eastern Europe have merit. The fund rose 11.08% through the end of January, since its inception on September 30, 2009. ESR invests in equities from four countries, Russia, Poland, Hungary and the Czech Republic. Nearly three-quarters of its investments were based in Russia at year-end 2009, while Poland ranked second and accounted for more than 14% of the fund’s portfolio. Two energy companies, OAO Gazprom-Reg S ADS, 21.21%, and Lukoil-SPON ADR, 9.75%, ranked as the fund’s largest investments at the end of January.

In addition, both Russia and Poland have economic growth rates that are projected to top those of the eurozone. The European Bank for Reconstruction and Development (EBRD) is forecasting economic growth this year of 3.9% in Russia and 2.3% in Poland. Those are pretty good growth rates, especially considering much of the rest of the world is struggling.

Certainly, no region of the world is immune from the economic weakness that has spread to virtually every corner. But the eurozone and the debt woes of its weakest countries leave that region in a vulnerable state. Safe harbors are not easy to find in a financial storm, but Eastern Europe may be one place that investors can duck for cover.

I currently am not recommending ESR, but it is a fund that I am tracking. If you believe that Eastern Europe offers a refuge from the debt problems threatening the eurozone, ESR is one fund that you may want to consider.

Please feel free to contact me if you want advice about which ETFs to buy and to sell. One way to obtain my guidance on a regular basis is to sign up for my ETF Trader service by clicking here. As always, I am pleased to answer your questions about ETFs, so do not hesitate to email me if you have one. To send a question to me, simply click here. You may see your question answered in a future ETF Talk.