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The iShares MSCI Switzerland Capped ETF: A Fund Worth Yodeling About

An established fund whose top holdings include premier global companies. The heaviest weightings have low volatility, are cyclically defensive and have above average dividend yields. The fund is diversified, yet intelligently structured with a strong defensive bias. Switzerland has been the financial safe haven for centuries and naturally, most people think of those legendary ‘Swiss Banks’. What goes mostly unnoticed, though, is their well-diversified export economy with global reach through premier companies. BlackRock’s iShares MSCI Switzerland Capped ETF (NYSEARCA: EWL ) offers perhaps the best product for a long term investment. First, the EWL’s fees and expenses are capped, although the prospectus does not seem to differentiate its management fees formula for capped or uncapped funds. The fund’s objective is to ” track the investment results of an index composed of Swiss equities” in particular, targeting 85% of the MSCI Switzerland 25/50 index of large and mid-cap companies. (click to enlarge) (Source: iShares) The fund’s nets assets are over $1.228 billion invested in 40 holdings. There are over 35.6 million shares outstanding and it trades an average of 115,744 a session. It currently trades at a premium of 0.79% to its Net Asset Value. The average P/E ratio of total holdings is 18.12. The average price to book is 2.39. The share’s beta is 0.79, i.e., it will move about 0.79 points for every 1 point market move, hence, it is less volatile than the aggregate market. The fund’s dividend return is 2.28% at 0.788 per share. The fund’s top holding is the consumer staples giant, Nestlé ( OTCPK:NSRGY ) at 16.0708% of the fund. Nestlé ‘s has 197 operations worldwide. It’s interesting to note that neither Consumer Staples nor food products account for a very large portion of Swiss exports. Coffee is largest percentage of any food export at 15th and 0.72% of total Swiss exports, then chocolate, 46th at 0.30% of Swiss exports. Nestlé’s business model utilizes a global production and distribution network. It procures, produces and distributes regionally from its factories located abroad: Europe has 136 locations, the Americas have 163 and Asia, Oceania and Africa, 143 combined. Hence, Nestlé is insulated from a strong Swiss Franc and can compete regionally. Nestlé is the only Consumer Staple in the top ten but the fund’s largest holding. Nestles ‘ ADR carries a 3.06% annualized dividend of $2.276, a P/E of 16.45, an EPS of 4.52 and a remarkably low beta of 0.521. Nestles sources ingredients responsibly, establishing minimum standards and product ‘traceability’ from 165,000 suppliers and 680,000 individual farmers. Nestles prides itself on its environmental and sustainability requirements. For example, Nestles is currently upgrading its California bottling plants to operate as a ‘zero water use facilities’. (Source: iShares) The second largest holding is Novartis (NYSE: NVS ), at 15.3964% and third, Roche Holdings ( OTCQX:RHHBY ) at 12.9567%. Again, it’s important to note some basic facts of these two premier healthcare companies. Novartis pays an annual 2.33% dividend of $2.259 per share, has a P/E of 23.38 and a low market beta of 0.77. Novartis produces Cardio Metabolic, Retina, Respiratory and Oncology therapeutics. Two familiar subsidiaries are Alcon, the eye care products company and Sandoz, the generic drug manufacturer. Roche ADRs carry a 2.83% annual dividend yield of $1.004, has a P/E of 26.38 and a market beta of 0.5. In addition to diagnostics and screening solutions, therapeutics drugs produced by Roche target Diabetes, Hepatitis, Leukemia, anti-rejection, and West Nile Virus to name a few. Lastly, as it is with Nestles, Novartis and Roche are, philanthropic, socially responsible and have strong sustainability and environmental impact policies. In total 39.5784% of the funds top 10 holdings are in Healthcare, and account for 88.91% of total Healthcare holdings. Financials comprise 20.33% of the fund’s holdings. Financials in the top ten include, UBS Group (NYSE: UBS ), 4.6014%, Zurich Insurance Group ( OTCQX:ZURVY ), 4.0688% ; Credit Suisse (NYSE: CS ), 3.7144% and Swiss Re ( OTCPK:SSREY ) 2.8509%. That works out to 21.267% of the fund’s top ten holdings and 74.941 of the fund’s total financial holdings. The funds motif carries over to the financials also. They have good dividends, low market volatility and concentrated in the top holdings. UBS is a global investment bank as well as wealth and asset managers with offices in 24 countries and all major financial centers worldwide. UBS carries a dividend yield of 2.53% at $0.53 annually, has a P/E of 16.23 with a beta of 1.02 Zurich Insurance provides retail and corporate insurance coverage across the entire spectrum of insurance products in over 170 countries. Zurich Insurance Group carries a dividend yield of 5.50% which works out to nearly $17.00 at its current $308.00 ADR price, has P/E of 11.78 with a beta of 0.399 Credit Suisse provides investment banking and asset management services for high net worth private clients in 50 countries. Credit Suisse has a dividend yield of 2.72% at $0.7464 annually, has a P/E of 22.80 and a beta of 1.08 Lastly, Swiss Re is a leading global reinsurer in 23 countries. Swiss Re has a dividend yield of 4.70% at $4.25 annually, a P/E of 37 and a market beta of 0.97. It’s important to note that according to the WTO , Switzerland’s commercial service exports, which includes financial and insurance services accounts for $93.421 billion or 2.01% of all global services exports. Industrials comprise 11.53% of the fund with only one representation in the top ten, ABB LTD (NYSE: ABB ). At 4.35% of the fund’s holdings, that accounts for 37.728% of all industrial holdings and 6.07% of the top ten holdings. ABB ‘s main focus is on electrical-mechanical equipment. This includes power transmission equipment, surge protection, motors, generators, transformers and linear controllers. ABB provides services and equipment for renewable energy infrastructure, electric vehicle systems, network management and marine transport. Because of its experience and focus on energy transmission, ABB’s has extraordinary growth potential in emerging markets as well as in some advanced economies whose power transmission infrastructure is in need of upgrading. The company’s annual dividend is 2.60% at $0.59 per share, a trailing P/E of 19.38 and beta of 1.14. Syngenta (NYSE: SYT ) is a global biotechnical agricultural products and seed producer located in 90 countries. The company focuses on sustainability, their motto being, “Bringing Plant Potential to Life” . Syngenta focuses on efficient crop production with higher yields and cost savings. At 3.71%, Syngenta accounts for 42.546% of all Materials holdings and 5.179% of the top ten holdings. Once again a closer look reveals an annual dividend yield of 2.33% at $1.95, a P/E of 24.01 and a market beta of 0.71. Lastly, COMPAGNIE FINANCIERE RICHEMONT ( OTCPK:CFRUY ) , at 3.84% of total holdings is most definitely a Consumer Discretionary company, producing unique ‘quality crafted’ luxury products with global distribution. Some of the more familiar names in the product line are Cartier, Alfred Dunhill, Chloé and Piaget . Richemont comprises 5.36% of top ten holdings and 67.605% of all consumers discretionary in the fund. Simply put, its products target the ‘high-end’ retail market, usually immune to cyclical downturns. The annual dividend yield is 1.03% at $0.847 per share, a somewhat high P/E at 34.74 and a market beta of 1.256. (Source: iShares) The fund is concentrated in its top ten holdings, containing 88.91% of all Health Care, 74.94% of all financials, 85.30% of all consumer staples, 37.728% of all industrials, 42.546% of all materials and 67.605% of all consumers discretionary. Telecommunications, 1.46% of the fund and Energy, 0.80% of the fund do not factor into the top ten holdings. A few other telling statistics of the top ten holdings is the average dividend yield of 2.963%, an average P/E 23.215 and an average beta of 0.8366. Compare this with the average S&P P/E of 21.47 and 1.99% dividend yield. (click to enlarge) (Source: iShares) One caveat: There is a slight currency risk. Switzerland traditionally keeps a strong free float currency and presently its ‘safe haven’ reputation has created demand for its currency and bonds. When a currency weakens against its trading partners, exported products become less expensive. Conversely, if the currency strengthens, exported products become more expensive. The above mentioned Swiss manufacturers had the foresight to utilize a global, material procurement, production and distribution network model, thus avoiding pricing skewed by Swiss Franc currency fluctuations. To be sure, there are other Switzerland focused funds. One of those listed in Seeking Alpha’s ETF hub is the First Trust Switzerland AlphaDEX® Fund (NYSEARCA: FSZ ) . The First Trust’s holdings are heavily weighted towards financials at 32.6% with 14.92% in the top ten. Similarly, 24.07% of the fund’s total holdings are industrials with 11.71% in the top ten. Materials and Consumer discretionary combined, comprise 19.38% of the fund with 7.31% in the top ten. In total, over 76% of total holdings are cyclically sensitive. Essentially, those companies comprising the First Trust Fund are the same companies as in the iShares Swiss focused fund, however the critical feature is the structure of the funds. The weighting of each are nearly inverses of each other. FSZ, by its structure, will have higher cyclical volatility. A second alternative is the Swiss Helvetia Fund (NYSE: SWZ ) . The fund’s website does list the top ten holdings but not the fund’s entire holdings. Judging by the top ten heaviest weighted holdings, SWZ is defensively weighted with healthcare giants Novartis and Roche topping the list followed by consumer staples manufacturer Nestles , followed by the famed Chocolatier Lindt & Spruengli ( OTC:COCXF ). The more cyclically sensitive UBS, Credit Suisse and Swatch group ( OTCPK:SWGAY ) comprise a lesser portion of the top ten holding. It should also be noted that the Helvetia Fund has recently changed its managing advisors. Switzerland has about 50 world class companies so all three funds contain the same companies, more or less. The key is in each fund’s structure. iShares Switzerland focused fund EWL is as carefully crafted as a Swiss timepiece. It weights the best of all worlds: Growth, Dividends and Low Volatility. SWISS ETF Comparison Table 1 month 3 months 1 year 5 years EWL -2.64% 3.81% -2.15% 68.75% FSZ -3.06% 3.84% -5.63% 36.21% SWZ -3.28% 5.56% -17.62% 11.56% (Source: combined) In summary, the iShares MSCI Switzerland Capped ETF ( EWL ) is diversified through globally positioned, cyclically defensive companies and does so without sacrificing growth. All said and done the iShares Switzerland capped ETF is ideal for the investor with a long term view. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: CFDs, spreadbetting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.

Risk Factors Drive Lazard’s Systematic Approach To Core Investing

By DailyAlts Staff Core investments are those that anchor the portfolio. Typically, investors pursue exposure to broad-market benchmarks, such as S&P 500 or MSCI indexes for stocks, and the Barclays Aggregate Index for bonds, as part of their core holdings, with the intent of minimizing the unexpected. But rather than passively investing in index funds, Lazard (NYSE: LAZ ) thinks investors should take a systematic approach to implementing core investing strategies, and that is the subject of the firm’s latest Investment Focus white paper: Core Advantage: The Case for a Systematic Approach to Core Investing . The Non-Systematic Approach Managers pursuing non-systematic approaches to providing core exposure suffer from several pitfalls, first among which is the tendency for them to introduce unwanted risks to a portfolio in pursuit of benchmark-beating returns. This can happen from overweighting stocks according to style, market cap, or geographic region. While it might prove rewarding under certain market environments, it can result in outsized losses when trends unexpectedly reverse, and this is not what most investors are looking for from their core holdings. The image below shows how market favor has vacillated over time, shifting between growth and value stocks; large caps and small; and developed and emerging markets: The Systematic Approach The authors of Lazard’s paper believe the systematic approach is the best for core investing, because it allows managers to maintain stricter parameters relative to their benchmark, by ensuring against concentration according to market cap, sector, or country. Additionally, using a rules-based, data-driven, and systematic approach allows managers to analyze hundreds, even thousands of stocks within a given universe, in real-time using a bottom-up process; and to combine “robust risk management” with stock selection. How does it work? Well, according to Lazard, various risk factors have been rewarded by markets over time, including valuation, sentiment, and quality, as depicted in the image below: Valuation compares a company’s price to its peers and its own historical record, and favors companies that are inexpensive and offer long-term value. It’s a contrarian approach, and investors need to be prepared to endure short-term, unrealized losses. Sentiment is gauged by looking at the stock’s price strength, relative to the other stocks in its sector and broader benchmark, as well as analyst upgrades. In Lazard’s approach, liquidity is also taken into account by looking at volume-weighted momentum, and companies with strengthening momentum are favored while those with weakening momentum are disfavored. Quality is assessed by stability of returns and low earnings-volatility. According to Lazard, quality stocks are often those in the process of “migrating” from the realm of growth stocks to that of value. Systematic Evolution Systematic investing avoids concentrating investments in any one area and seeks to maintain a composition similar to that of its benchmark. This requires what Lazard calls an “evolving approach,” wherein investment professionals are constantly researching and testing potential improvements to the investment process. Lazard’s own approach, as implemented by the Lazard Equity Advantage team, is “uniquely positioned to help clients achieve their investment goals,” according to Lazard. “This has proved to be a solid foundation on which to build equity asset class exposure – especially through core approaches – and long-term investment program success.” For more information, download a pdf copy of the white paper .

MLP Returns In Your IRA Or Tax Protected Account: Number 3 In The Series

Two MLP CEFs that offer yields over 7% at current prices. Using these CEFs allows one to keep them in an IRA or Tax protected account without concern over the $1000.00 UBTI limit. Both of these CEFs is currently selling below NAV. This is the third article to cover various CEFs, ETFs and ETNs that cover high return issues like MLPs and REITs that are useful for an IRA and/or other tax deferred accounts. The first article in the series is here and the second is here . This piece examines several funds that were suggested in the comments section of my first article, NML and CEM . Neuberger Berman MLP Income Fund distributes payments monthly and currently pays $0.105 per share on the last day of the month. At a price of around $16.00 per share, the fund offers nearly an 8% yield. The chart below indicates that the fund is selling at its low for the year. (click to enlarge) Source: Interactive Brokers NML originated on 3/25/2013 as a CEF and the value of the fund has increased just short of 6% over the past 2 years. The fund is selling at about an 8% discount to NAV since the NAV was $18.43 as of 6/18/2015 and sold for about $17.00 per share on the same date. The CEF’s holdings as of 5/31/2015 are displayed below: (click to enlarge) Source: Neuberger Berman Web Site The current list of holdings is showing either a yield that is the same or greater than last year, which should indicate that the current dividend is relatively safe. However, there is no guarantee that there will not be decreases in the monthly payment at some future time if the prices of oil and gas don’t hold up. The managers of the fund are Douglas Rachlin with 29 years of investment experience and Yves Siegel who has 30 years of investment experience. Both managers personally own several thousand shares of the fund, assuring investors they have a vested in interest in the CEF doing well. The portfolio turnover ran at 10% for 2014 and expenses for the fund excluding income tax were 1.77%. Total expenses including income tax ran near 8%. Since the fund pays income tax on MLP earnings, one does not have to deal with a K-1 or have any concern about having this fund in an IRA. The fund uses leverage and recently updated its lending facility. The fund has the ability to finance $500 million of leverage with a $300 million floating rate facility and a $200 million fixed-rate facility. Clearbridge Energy MLP Fund Inc. (NYSE: CEM ) is a MLP closed end fund run by Legg Mason Global Asset Management. Total assets of the fund amount to $3.12 billion with quarterly distributions that have been increasing gradually since the fund was first started in 2010. Distributions started at $0.35 per share in 2010 with the latest distribution at $0.42 per share. This fund like the others covered in the series sends a 1099 at the end of year so an investor does not need to be concerned about K-1s. Michael Clarfeld, a CFA with 15 years of investment experience, Chris Eades with 23 years of investment experience and Peter Vanderlee, a CFA with 16 years of investment experience are the directors of the fund . The investment objective of the fund is to provide a high level of total return with an emphasis on cash distributions. The fund has grown both the dividend and the NAV since inception, see below: (click to enlarge) Source: Clearbridge Web Site The top 10 holdings of the fund are listed below: Source: Clearbridge Web Site One can see from the fund’s asset allocation below that it is not dependent upon drilling for oil and gas the dividend: Source: Clearbridge Web Site CEM recently completed a private placement of preferred stock and notes totaling $258 million to make new investments. So it is certain that the managers of the fund are planning to exercise leverage in the portfolio. The current expense ratio for this CEF is 2.19%. The current price of CEM is around $23.00 per share with a quarterly distribution of $0.42 per share so that the current yield of the fund is around 7.3%. The fund is selling about 7.5% below NAV just as NML is, so one can buy either of these funds at a discount to the actual worth of their holdings. The holdings of these 2 funds are somewhat different, so an investor desiring greater diversification with one’s MLP holdings could consider buying some of both funds. Conclusion: Both of these CEFs offers a yield over 7% at current market prices and is selling considerably below NAV. Although both have relatively high expense ratios, the leverage these CEFs uses helps cover these costs so that yields remain high. CEM has been in existence longer and has shown greater appreciation and growth in yield than NML and could be the better CEF. However, buying a bit of both gives one greater diversification in the MLP industry without having to deal with K-1s. Using these CEFs as well as others I have covered in the past allow one to have MLPs in a tax-protected account without the concern over the $1000.00 limit imposed by the IRS on UBTI. In addition, they also offer greater diversification and no concern about K-1s if one desires to use them in a regular account. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.