The sovereign debt crisis in Europe that spanned much of 2010 -- and looks to carry over into 2011 as well -- put a variety of European economies under the spotlight. Both major economies, such as Spain, and minor nations such as Ireland felt the heat from investors, citizens, and foreign governments alike, who were all growing increasingly concerned over how programs would be paid for, and which would have to be cut in order to maintain solvency. Issues are also starting to crop up for Italy as well, but few investors are likely to have noticed given the apathy that most have shown towards the nation's ETFs. According to our Country Exposure Tool, 53 different funds offer exposure to Italian securities, and yet just four offer exposure exceeding 10% of their total assets to the country. In fact, only one fund offers near universal exposure to the country despite the massive size of the Italian economy. This main ETF tracking the Italian markets, the iShares MSCI Italy Index Fund (NYSE: EWI) amazingly has less than $100 million in assets under management, even though it tracks the economy of one of the 10 biggest economic powers in the world [see all the ETFs in the European Equities ETFdb Category].

This is in sharp contrast to other comparable-sized economies that have amassed a great deal more in assets in their most popular ETFs. The main fund tracking the U.K. currently has over $1 billion in assets, while Brazil's main ETF has close to $12 billion, even though both of the nations have roughly the same level of GDP as Italy. Even tiny Malaysia -- a country that most Americans probably couldn't find on a map -- has its ETF, EWM, which possess more than ten times the assets of EWI.

While it is hard to explain why investors have completely abandoned ETF investing in Italy, a couple of possible reasons come to mind. First off, Italy is a very mature market with low growth prospects; the country has a very low birth rate and seems poised to shrink population-wise heading into the next few decades. Political turmoil and budget issues haven't helped matters either as investors have had to deal with a constantly changing regulatory environment and fears over the government being forced to pull the plug on expensive social programs in the near future in order to keep the economy moving at all [see The Ten Worst Performing ETFs of 2010].

However, with that being said, the nation has a wealth of dynamic assets to its credit as well. Tourism in the country remains strong while pockets of manufacturing across the nation continue to flourish and remain in demand across the world. In fact, the nation is the world's 7th largest exporter, outpacing well-known exporters such as South Korea. Furthermore, the nation has relatively solid relationships with a number of countries in key locations, such as emerging nations in North Africa and even Russia. These deals could make the nation better able to fight through any crises than some of its more developed market-focused peers, such as the U.K.

As a result of this complete oversight by investors, we have decided to take a closer look at the main fund tracking the Italian markets, in order to give investors a better understanding of a fund that they probably have overlooked.

EWI tracks the MSCI Italy Index which measures the performance of the Italian equity market by investing in 32 Italian securities. It is heavily weighted towards three sectors; financials (32.2%), energy (27.2%), and utilities (17.1%) while offering minimal allocations to consumer staples and telecommunication firms. Its top individual holdings include oil giant ENI SpA (18.7%), electricity and gas provider Enel SpA (10.5%), and banking firm Unicredit SpA (9.4%).

Although the fund has been rocked by the sovereign debt crisis over the past year, posting a loss of 15.3% in 2010, EWI does pay a relatively high dividend yield of 2.5% and has a PE ratio of 13.2. This suggests that for those seeking European investments in beaten down countries, EWI could make for an intriguing choice given its relatively overlooked status by investors and its exposure to securities most investors probably do not have a lot of exposure to in their current portfolios [see more holdings of EWI here].

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Disclosure: Eric is long EWM and EWZ.

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