CALDEIRÃO DE BOLSA

How to Play Portugal

Northern Trust's most recent listing of a single country ETF under the brand name NETS covers Portugal's PSI 20 Index and trades with ticker LIS.

This fund will never be a good fund or a bad fund -- it is simply exposure to the Portuguese market, just as the S&P 500 or Russell 1000 could be thought of as exposure to the U.S. market. A given moment in time will either be a good time to buy the fund, i.e. buy Portugal, or it will not.

The NETS focus on the benchmark indexes in these countries. For example, the France fund tracks the CAC 40, as opposed to iShares, which tracks the MSCI France Index. Obviously, more people know and track something like the CAC 40 than an MSCI index.

There are a total of 14 NETS country funds listed so far, with more on the way, but Portugal is one of the smaller countries available. Most of the single-country NETS funds charge an expense fee of 0.47%, as does LIS.

LIS is heaviest in financials stocks at 26.55%, followed by utilities at 17.84%, industrials 17.27% and telecom 15.39%. There are only 20 stocks in the index, so the fund might be more concentrated in sectors than you might be used to.

The 13th largest holding is Sonae SGPS, and it has a larger weight in LIS at 4.12% than Exxon Mobil has in the S&P 500.

LIS' largest holding is EDP-Energias de Portugal, the big electric company of Portugal, at 15.16% of the fund. Anyone studying LIS probably needs to learn a little about Energias.

Given that financials comprise about a quarter of the fund, it might make sense to know what you might be in for with those stocks.

The chart shows that while the U.S. financials, as measured by Financial Select Sector SPDR, have had the flu, two of the larger bank holdings in LIS have had pneumonia.



Portugal's vital statistics don't paint a very good picture. GDP growth is running under 2% and is expected to do so for a while longer. The current account is close to 8% of GDP, which is on the high side. Unemployment in 2007 was 8%.

Portugal is part of the EMU, so the interest rate policy is set by the European Central Bank. Despite signs of weak growth, the ECB seems unlikely to cut rates anytime soon.

As this second chart shows, the PSI 20 has a track record for being more volatile than the U.S. market, while Portugal has had a bumpy ride over the last year or so.

When it turns around, it seems reasonable to expect that it could outperform to the upside as it has on the way down -- of course, figuring out when that turnaround comes will be very difficult.



The act of just looking at the fund's holdings can be a chance to learn. There are two stocks in the mix that caught my eye as things to learn a little more about for the future.

First is Brisa, which is a public toll road company, and Jeronimo Martins , which is a supermarket chain with over 1,000 stores.

In the time that the PSI has gone down 16%, Brisa has been down 5%, while Jeronimo Martins has been up 5%. This makes sense, as both would seem to be nowhere near as cyclical as many of the other components in the index.

In trying to figure out whether to buy into a small but developed country that doesn't seem to have a lot of what the world needs, accessing it with a less volatile, countercyclical stock could be a better choice than going with the more volatile sectors like the financials or the entire market with LIS.

Roger Nusbaum