How to Invest in Spain

Using ETFs and ADRs to Invest in Spain

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Spain has the 14th largest economy in the world by nominal gross domestic product (GDP) and the 41st largest by purchasing power parity (PPP), as of 2020. The economy suffered a deep contraction during the 2008 financial crisis, but then it became one of Europe’s fastest-growing economies, with year-over-year growth from 2014 to 2019. However, with the emergence of Covid-19, Spain's GDP performed the worst in all of the Eurozone in 2020, falling 11%. Luckily, they are on track to recover to their pre-pandemic growth economy by 2023. International investors have taken a renewed interest in the country, anticipating that its economic rebound will continue to gain traction over time as it did after the financial crisis.

Competitive Economy

Spain’s economy is primarily focused on services (74.2%), industry (23.2%), and agriculture (2.6%). Within these sectors, the country hosts many large multinational companies, including renewable energy operator Iberdrola and telecom firms like Telefonica and Movistar.

The 2019 Global Competitiveness Report listed Spain as being ranked 23rd overall in terms of sustained economic growth and 7th most developed in terms of infrastructure. These rankings place it ahead of developed economies like China, Italy and Portugal, with its high-speed rails system and highly developed technological infrastructure.

Investing in Spain with ETFs

The easiest way to invest in Spain is using international ETFs, which provide instant diversification in a single U.S-traded security. By holding a diverse portfolio of companies spanning many industries, investors don’t have to worry as much about concentration risks or buying and selling a portfolio of individual stocks. The trade-off is that these funds charge a modest expense ratio, which can reduce overall returns over time.

The four most popular Spanish ETFs include:

  • iShares MSCI Spain Capped ETF (EWP)
  • iShares Currency Hedged MSCI Spain ETF (HEWP)
  • SPDR MSCI Spain Quality Mix ETF (QESP)
  • Deutsche X-Trackers MSCI Spain Hedged Equity ETF (DBSP)

There are many factors that international investors should consider before investing in these ETFs. In general, investors should seek out ETFs with the lowest expense ratios assuming that everything else is equal in order to maximize returns. It’s also important for investors to look at portfolio concentration risks with ETFs focused on specific sectors of the economy and liquidity risks associated with ETFs that are thinly traded.

Investing in Spain with ADRs

American Depositary Receipts—or ADRs—are another easy way to invest in Spain without opening a foreign brokerage account. These securities are tied directly to a basket of foreign stock and trade on a U.S. stock exchange, which means that investors don’t have to worry about the tax implications of foreign capital gains. Many of these funds also trade on national exchanges like the NYSE that may be more liquid than OTC exchanges.

The most popular Spanish ADRs include:

  • Banco Santander (SAN)
  • Telefonica (TEF)
  • Abengoa (ABGB)
  • Banco Bilbao Vizcaya Argentaria (BBVA)
  • Grifols (GRFS)

Again, there are many factors that international investors should carefully consider before purchasing ADRs. The single most important factor is often liquidity—especially for ADRs that trade on over-the-counter markets. Since foreign stocks tend to have less of a domestic following, many ADRs trade significantly less shares every day than domestic stocks, which can make it risky when an investor is trying to buy or sell at fair prices.

The Bottom Line

Spain has become an increasingly popular investment destination. While it has taken a hit during the COVID-19 pandemic, its economy looks to recover rapidly and continue in this grow. Pre-pandemic it was one of the fastest-growing European economies, international investors may want to take a closer look at this once-beleaguered economy. Spanish ETFs and ADRs are the two easiest ways to invest in the country without dealing with the hassle of opening a foreign brokerage account and paying taxes. By keeping these tips in mind, international investors can build exposure to this promising economy into their portfolios.

Article Sources

  1. World Bank. "GDP (current US$)."

  2. The World Bank. "GDP per capita, PPP (current international $)."

  3. U.S. Department of State. "2021 Investment Climate Statements: Spain."

  4. The World Bank. "World Development Indicators."

  5. Central Intelligence Agency. "The World Factbook - Spain."

  6. World Economic Forum. "The Global Competitiveness Report 2019," Page 522.

  7. Fidelity Brokerage Services. "ETFs vs. Mutual Funds: Cost Comparison."

  8. Fidelity Brokerage Services. "Understanding American Depositary Receipts (ADRs)."