Tag Archives: japan

The Trans-Pacific Partnership – Biggest Winners

By Carl Delfeld On Friday, I gave an overview of the Trans-Pacific Partnership (TPP) deals and how the proposed changes will affect the United States. I also revealed one American company poised to benefit from those changes: Hormel (NYSE: HRL ). Today, I’m back to finish this thread by identifying two Pacific Rim countries that are poised to be the biggest winners. In trade pacts, it’s not difficult to figure out who the big winners will be. They’re usually the least-developed countries in the grouping because they have less to lose and the most to gain. For certain sectors, however, more-developed countries can hold a winning hand. Ahead of the Pack New Zealand, for example, is poised to come out ahead. New Zealand represents 35% of world dairy exports, so it’s basically the “Saudi Arabia of dairy.” Fully 37% of its land mass is devoted to agriculture with 48% contributing to total exports. Ninety percent of farm production is exported. Clearly, I’m not the only one who thinks New Zealand is an exceptional place from a risk-reward perspective. Many of the wealthiest people in the world, who have the resources to go anywhere and buy anything, have been quietly establishing escape hatches there. Two of the TPPs others winners hail from Southeast Asia – Malaysia and Vietnam, which still lack bilateral trade agreements with four countries in the pact, including the United States. Both count on TPP members for roughly one-third of their trade, and Bank of America Merrill Lynch estimates that the TPP would push Malaysia’s exports up roughly 10% and Vietnam’s up 30%. And the Winner Is… While Japan and America will get a modest boost of economic growth as this agreement takes effect, the big winner will be Vietnam. According to UBS report, the TPP could potentially boost Vietnam’s economy by 14% over the next five years. This country of 93 million is bursting with youthful energy, with 50% of its tech-savvy citizens under the age of 30. Its manufacturing wages are 60% of China’s, which is why Samsung ( OTC:SSNLF ) makes half of its cell phones here. About 20% of Vietnam’s GDP is attributed to foreign investment, and that will likely surge even higher. So far in 2015, foreign direct investment is up a stunning 53%; most of it headed to the manufacturing sector. A consumer boom is already underway. To put the potential in perspective, right now only 1.7% of Vietnamese own a car; in Thailand, that figure is 40%. Vietnam also has the lowest GDP per capita among TPP member states: $1,900. Peru is the next lowest at $6,800. Vietnam will become a manufacturing destination for industries that require low-wage labor to remain competitive. Sectors that need cheap wages, such as apparel, footwear, and textiles, should greatly benefit. Eurasia Group estimates that footwear and apparel exports will see a 50% boost over the next 10 years due to the trade pact. “Vietnam has already made huge gains in garment and footwear production, and these deals will help boost its comparative advantage as factories look to relocate from China, promoting more job creation and technology transfer,” said Johanna Chua, an economist at Citigroup. This explains why Vietnam’s exports have tripled in U.S. dollar terms since 2007 and its exports to North American markets are up an amazing 30-fold since 2000. The TPP should lessen the country’s reliance on the Chinese market and widen its appeal to markets such as Canada and Mexico. Meanwhile, the country’s macro situation has markedly improved. A few years ago, inflation was running at 20%, but it’s now down to 2%. Interest rates have fallen from 15% to 6%, property markets have stabilized, and credit growth is up. Despite this progress, Vietnam’s stock market is still well off its high and trading at just eight times earnings. In addition, the current market value of all publicly traded companies in Vietnam is 30% of its GDP, while Thailand and the Philippines are trading at 95% and 115%, respectively. These gaps won’t last forever, so I encourage you to take action by blending the Market Vectors Vietnam ETF (NYSEARCA: VNM ) into your global portfolio. The ETF is a bit top heavy with its top 10 holdings representing 60% of total holdings. Don’t wait too long. This ETF has surged in the wake of the TPP negotiations, but has plenty of room to grow. Original Post

Wisdom Tree Small-Cap Global ETF: Currency-Hedged Version

Since the importance of currency hedging international investing is known to all, thanks to the soaring greenback against a basket of currencies, WisdomTree could not hold itself back from rolling out a currency-hedged global small-cap ETF, a few days after launching the WisdomTree Global SmallCap Dividend ETF (BATS: GSD ). The newly launched fund is named WisdomTree Global Hedged SmallCap Dividend Fund and trades under the ticker symbol HGSD . In any case, WisdomTree is almost at the helm of the currency-hedged ETF investing style. And this strategy would be extremely meaningful next year, as the Fed looks to hike key rates by the end of this year and most developed nations (even some emerging markets) are following the easy money policy to boost their economies (read: ” Can Anyone Match WisdomTree in Currency-Hedged ETFs? “). Below, we highlight the key characteristics and the prospects of HGSD. HGSD in Focus HGSD looks to deliver the investment results of the 1,000 largest small-capitalization companies that fall in the bottom 5% of the WisdomTree Global Dividend Index. It simultaneously follows a currency-hedging exposure, which is a beneficial strategy to minimize the adverse fluctuations between the U.S. dollar and foreign currencies. The fund charges 43 bps in fees. Sector-wise, Financials dominates the fund with 26.43% allocation, closely followed by Industrials (20.1%), Consumer Discretionary (15.34%) and Materials (9.21%). Geographically, the U.S. takes about 49.24% of the total basket, with Japan taking the second spot, holding about 10.69%. The other regions account for single-digit holdings each. How Could it Fit in a Portfolio? The wave of easy money polices across the globe, be it in Europe or Asia, have brightened the appeal for dividend investing lately. Though the Fed is preparing for policy normalization in December, the modest U.S. growth momentum indicates a slower rate hike trajectory in the future. All these market forces should keep bond yields in check globally. As a result, investors looking for steady current income might shift their focus to high-dividend stocks. Moreover, all these market forces set the stage for global investing, but it in a currency-hedged manner to neutralize the dollar strength. The newly launched ETF’s heavy exposure in the U.S. and Japan will enable it to ride on steady economic growth. Though the Japanese economy has slipped into a recession, its central bank is pursuing an ultra-easy monetary policy which should act as a driver for investors. Other underlying nations, including the UK, Canada and Australia, have also chosen the accommodative policy route to boost their own economies. This will lead to stepped-up activities and rising business and consumer confidence, which, in turn, will benefit small-cap companies. After all, small caps are considered the measure of the domestic economy. In a growing economy, these pint-sized securities perform the best, as they generate most of their revenues from the domestic market and strip out global growth concerns. Competition Players in the global small-cap, currency-hedged ETFs are not many. Hardly two or three products are available now. So, HGSD will face stiff competition from the iShares Currency Hedged MSCI EAFE Small-Cap ETF (NYSEARCA: HSCZ ) and the WisdomTree International Hedged SmallCap Dividend ETF (NYSEARCA: HDLS ). However, WisdomTree’s other fund, HDLS, does not consider stocks outside the U.S. and Canada. So, HGSD should not face any hurdle in amassing investors’ assets. Original Post

DWX: High Yield International Allocations With Falling Share Prices

Summary The dividend of 5.69% looks incredible until investors take a look at the total return. The individual holdings have fairly high weights which suggest higher volatility. The sector allocations for utilities look great, but the lack of other defensive sectors is fairly strange. Looking at historical performance confirms the higher volatility of the fund and a negative total return over a long time period. The SPDR S&P International Dividend ETF (NYSEARCA: DWX ) is a weird fund that doesn’t quite seem to go together for me. I’ve seen quite a few good dividend ETFs lately and started to wonder if my standards were simply slipping. It seems I was just due for finding one that didn’t work for me. Expenses The expense ratio is a .45%. This is quite a bit too high for my tastes. Dividend Yield The dividend yield is currently running 5.69% according to Yahoo Finance. This is just a beastly dividend yield and looks very attractive, though investors should expect weak trailing returns for most international ETFs. Over the last several years the domestic market has substantially outperformed the international markets. Holdings I put grabbed the following chart to demonstrate the weight of the top 10 holdings: The first thing to notice about the international allocations here is that the weightings are fairly heavy near the top of the chart. Around 25 to 30% of the portfolio is allocated to the top 10 holdings. This isn’t what I would consider extreme, but it is a little heavy for investors hoping for substantial international diversification to lower their risk since international stocks can be especially volatile. Sectors It’s fairly normal to see the financial sector receive a heavy allocation in dividend ETFs and I’ve found international allocations are also prone to placing a higher weight on the financial sector. With both factors in place here, it is no surprise that the financial sector is receiving such a heavy weight. On the other hand the heavy allocation to utilities is what I would consider fairly attractive since utilities have a great position in negotiating on price. The sector is generally going to be less competitive and investors can expect the companies to be fairly stable in being able to generate some profits. It is interesting to see that the health care sector and the consumer staples sector, which are the other two defensive sectors, have received very low weights after the heavy weight given to utilities. That’s a little strange and dampens my excitement about the fund. Geography I put together the following chart to demonstrate the allocations by country: (click to enlarge) The majority of these allocations are to developed countries, but there is a mix of emerging markets being included. I don’t mind using a mix like this as part of an international allocation, but it is interesting to see Japan being entirely absent from the country allocations when they have a fairly heavy weighting in many international portfolios. Volatility I ran a regression on the returns for DWX compared to the S&P 500 going all the way back to February of 2008. The annualized volatility for DWX was materially higher at 27.8% compared to 22.3% for the S&P 500. On top of much higher values for annualized volatility, the total return was a negative 21.0% compared to the S&P 500 being up 82%. I expect international allocations to have suffered quite materially relative to domestic equity, but the this is a long period in for a total return of negative 21%. Conclusion The allocations looked a little interesting as we got into the sector allocations, but the weaker allocations to two of the three defensive sectors was enough to give me cause for concern. The country allocation seemed interesting, but I didn’t see any problems that couldn’t be rectified by combining the fund with other funds that put heavier allocations into the missing markets such as Japan. The real problem came when I decided to look at the returns since 2008 and saw that despite a strong yield the fund has been struggling on total returns. International funds have generally had a rough go since the last recession but that is remarkably weak over a prolonged period.