After three years of huge losses, a large exchange-traded fund tracking Spanish stocks, the iShares MSCI Spain Capped ETF, has risen 23 percent this year.
With the European economic outlook strengthening, some strategists see further gains in the exchange-traded fund.
The market-weighted fund, heavily skewed toward the financial sector, covers the top 85 percent of Spanish companies by market cap, according to FactSet data. Industrials account for the next largest portion of the fund, which fell 10 percent in 2014, 18 percent in 2015 and 6 percent last year.
Some of the success can be attributed to the advances across Spanish banks; shares of the fund's largest holding, Banco Santander, have risen nearly 27 percent this year, and shares of its second-largest holding, Banco Bilbao Vizcaya, are up 21 percent.
"Long Europe/underweight U.S. trade has really been the gift that keeps on giving. But when you look at the fundamentals, there is reason for this. We have seen country after country dodging the populist bullet — from the Dutch, to the French, now the Italians, and will go straight through to the Germans at the beginning of fall. Those will continue; I think there is a reason that this momentum will continue," Gina Sanchez, Chantico Global CEO, said Monday on CNBC's "Trading Nation."
"But the outlook has also been pretty bright for Europe in terms of the economic outlook, and that means the [European Central Bank] will be able to potentially start to raise rates at some point," Sanchez added. "That's huge for banks."
Earlier this month, the European Central Bank announced that Banco Santander would rescue its failing peer, Banco Popular.
Rising interest rates are often seen as a positive driver for banks, along with a steeper yield curve — the spread between different bond maturities. According to Sanchez's thinking, the ETF will rise if the banks do well by way of a rising rate environment. Additionally, Sanchez pointed out, the ETF carries a large exposure to Latin America, which also has a strengthening economic outlook.
"So you do have some fundamental reasons to be positive on this; now it has come a long way and it's definitely not as cheap as it used to be," but there is more room to run, she said.
On the other hand, the European trade appears quite crowded, said Miller Tabak equity strategist Matt Maley.
"Unlike most people, I'm getting a little bit nervous about the European trade in general, and in Spain as well, because you can't open The Wall Street Journal or turn on CNBC without somebody talking about how you need to be long Europe," he said Monday on CNBC's "Trading Nation."
He is seeing a similarly "crowded" nature in traders' positioning in the euro, which furthers his cautious outlook on Spain and the region.
In March, influential investor and Appaloosa Management President David Tepper told CNBC that he was long European equities.
"It's had a nice run here," Maley said. "I don't want to overstate this: Things look very good on the fundamental side. But when so many people are talking one side of the boat here, it gets me a little bit nervous. And if things roll over, we might want to look at the northern European countries, rather than Spain." He added that he's not "overly bearish."