How to Invest in Spain
Using ETFs and ADRs to Invest in Spain
Spain has the 10th largest economy in the world by nominal gross domestic product (GDP) and the 12th largest by purchasing power parity (PPP). While the economy suffered a deep contraction during the 2008 financial crisis, it has since become one of Europe’s fastest growing economies. International investors have taken a renewed interest in the country’s as its economic rebound continues to gain traction over time.
Spain’s economy is primarily focused on services (71%), industry (14%), and construction (10%), with the remainder of economic growth coming from agriculture and energy. Within these sectors, the country hosts many large multinational companies, including Iberdrola – the world’s largest renewable energy operator – and large telecom firms like Telefonica and Movistar that have a presence in many global markets.
The 2013 Global Competitiveness Report listed Spain’s economy as having the 10th most developed infrastructure in the world. These rankings place it ahead of developed economies like the United States and Japan, with its high-speed rails system and highly developed technological infrastructure.
Exports have also been steadily growing as the country recovers from its significant trade deficit accrued during the 2008 financial crisis.
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 as its economy continues to recover from the 2008 financial crisis.
As one of the fastest growing European economies in 2015, international investors may want to take a closer look at the 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.