Will Election Cast A Pall On The Netherlands ETF?

Europe is in the spotlight this year thanks to a series of elections and referendums. In particular, the Netherlands is the first country to hold general election on March 15. The race for the position of the Dutch Prime Minister between Geert Wilders, a leader of the populist Party of Freedom (PVV), and the incumbent Prime Minister Mark Rutte, who leads People’s Party for Freedom and Democracy (VVD) is on a knife-edge. 

This is especially true given that Wilders, whose popularity surged in recent months, appears to have lost momentum in the final week, falling behind Rutte’s party with 22 seats compared with 25 in early March, as per the latest poll from Peil.nl. VVD is on course to win 25 seats out of the 76 needed to form a coalition government. Another poll – the Dutch Polling Indicator – also shows VVD is in the lead with 16% compared to PVV at 13%.

The current Dutch government comprises VVD holding 40 seats and the center-Left Labour Party (PvdA) with 36 seats. Though VVD is leading currently, the possibility of Geert Wilders becoming the largest party is still real as he effectively led the polls since September 15.

Consequences of Wilders’ Win

A PVV win could shake the future of the Netherlands and send shockwaves across Europe. This is especially true as Wilders called for a Dutch referendum on European Union (EU) membership last year immediately after the United Kingdom voted to leave the union. On his campaign trails, Geert Wilders proposed to close mosques and ban the Koran to prevent Muslin immigration in the Netherlands.

Investors should note that immigrants make up 25% of the country’s population. According to the Netherlands’ central bureau of statistics, immigrants increased from 56,000 in 2015 to 88,000 in 2016 with 29,000 coming from Syria.

Further, the victory of the PVV leader would lead to a populist uprising in the country. It would also spread the populist wave across the EU with the upcoming French and German elections, leading to heightened political uncertainty.

However, even if Wilders wins the maximum number of seats, he is unlikely to form the government as all his main rivals have ruled out forming a coalition with him.

Netherlands ETF in Focus

Given the political tussle, the only ETF – iShares MSCI Netherlands ETF (EWN - Free Report) – tracking the country will be in focus in the coming weeks. Year to date, the ETF is one of the best performers in the European space having gained over 10%, suggesting a strong outlook in the Netherlands momentum outlook despite the vote.

The fund tracks the MSCI Netherlands Investable Market Index and is home to a small basket of 58 companies. It is heavily concentrated on the top three firms that make up for a combined 37.4% of assets. Consumer staples takes the top spot at 28.6% in terms of sector holdings, followed by financials (19.2%), industrials (18.8%) and information technology (18.1%). The product has AUM of $187.5 million and trades in solid volume of more than 215,000 shares per day. It charges 49 bps in fees per year from investors.

Disclosure: None.

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