Tag Archives: london

The Case For Local Currency Denominated ETFs

Summary Few investors in the U.S. explore ETFs listed abroad. There may well be a larger and cheaper fund available to gain the desired exposure. Local currency denominated ETFs offer important benefits from the risk management standpoint. Investors are frequently advised to allocate at least a portion of their portfolios to international securities in order to benefit from the only ‘free lunch’ in the markets – diversification. Developed economies, emerging markets, frontier countries and a range of other definitions are commonly used in day to day conversations. However, with the ETF universe constantly expanding both in the U.S. and overseas, there are so many different options to give you the desired exposure that it has become a challenge to choose the most suitable fund. Investments in international markets come with an important element of complexity – currency risk. From a U.S. investor’s perspective, this means that even if the selected market performs well, the ultimate result can be affected by the local currency’s movement against the U.S. dollar. I have already discussed currency risk management in one of my previous articles , thus this time I would like to draw your attention to the differences between U.S. and internationally listed ETFs. Hopefully this will give you an alternative perspective about investing abroad. Finding an international equivalent As a practical example, I am going to use a case where a U.S. investor wants to invest in blue chip stocks in the United Kingdom. Checking the ETFdb.com , there appear to be 7 U.S. listed ETFs that invest solely in the U.K. Although 3 out 7 funds offer currency hedged exposure, by far the largest and most popular ETF in the U.K. category is the iShares MSCI United Kingdom ETF (NYSEARCA: EWU ), which leaves the pound-dollar FX risk unhedged. In fact, EWU with has 9 times more assets under management ($2.7 billion) than all other funds combined. This suggests to me that either U.S. investors are willing to accept the FX risk or they prefer to manage it on their own. If either is true, it then makes sense to explore local currency denominated ETFs that invest in U.K. stocks. To explore the European ETF space, one of my favorite tools is justETF.com . The screening tool on this website finds 11 ETFs investing in FTSE 100 constituents. The largest fund on the list is the iShares Core FTSE 100 UCITS ETF (LON:ISF), which is primarily listed on the London Stock Exchange. Compared with EWU, this fund has a couple of obvious advantages. First, its expense ratio of a mere 0.07% is well below 0.48% charged by EWU. Second, with $5.8 billion in AUM, ISF is twice as large and a more frequently traded fund. Returns In terms of portfolio holdings, both EWU and ISF have almost identical composition. Both ETFs hold just over 100 U.K. blue chip stocks weighted by market cap, thus the differences are so marginal that they can be neglected. However, does that mean that their impact on the portfolio is the same? The chart below illustrates performance of both ETFs as well as GBPUSD exchange rate over the last 12 months: (click to enlarge) Source: Google Finance Given that the operating model of EWU is to gather funds from investors in USD, convert them into GBP and then invest in U.K. stocks, its theoretical return should be very close to the combined result of ISF and GBPUSD. In reality, EWU underperformed by more than 1% (EWU: -6.78% vs. ISF: -1.01% and GBPUSD: -4.38%). There could be several factors accountable for the discrepancy, including tracking errors, expense ratios and the difference in trading hours. Separating the FTSE 100 index performance and GBPUSD impact gives an investor a much clearer picture of return drivers. In this particular instance, it is the FX component that accounted for the bigger part of EWU loss in the last year. Risk management Another important reason to consider local currency denominated ETF is the possibility to purify exposures. Looking at risk parameters of EWU calculated on a freely available investor resource utilizing 12 months historical data, it appears that the fund’s annualized volatility was 18.4%, whilst its beta against the SPDR S&P 500 ETF (NYSEARCA: SPY ) almost equal to 1. However, if we look at ISF.L in isolation, it turns out that the underlying index actually has a bit lower volatility and is substantially less dependent on S&P 500. I have included the Guggenheim CurrencyShares British Pound Sterling Trust (NYSEARCA: FXB ) in the table below as a proxy for GBPUSD. Source: InvestSpy The fact that relationship between FTSE 100 and S&P 500 is not so close is further confirmed by correlations, which show that ISF had a coefficient of only 0.58 as opposed to 0.80 of EWU. Source: InvestSpy This means that an investment in FTSE 100 has more potential to offer diversification benefits to a U.S. investors than it may appear at the first sight. Not surprisingly, the well-known and documented home country bias among investors only gets aggravated when market participants look at distorted statistics. Not only investing in local currency denominated ETFs gives a clearer picture of the underlying index, but it also forces an investor to make a conscious decision about the FX risk. In contrast, using a U.S. listed ETF for international exposure leaves the investor with a convenient alternative of not doing anything. As documented by behavioral economists and Nobel Prize winners Kahneman and Tversky, “opt in” vs “opt out” questions can lead to completely different outcomes. Systematic models Finally, for investors that rely on quantitative or technical analysis, it is important to distinguish whether their models are suitable for stocks, FX, or both. A moving average on SPY is not the same thing as a moving average on EWU because the latter is effectively a wrapper for both equities and FX components. If your model has been tailored for equities, ILS would be a more appropriate choice with the FX decision left as a standalone issue. Conclusion The aim of the article was to offer a different perspective into international investing via ETFs. Using the case of the U.K., I have illustrated that in some cases a local currency denominated ETF listed outside the U.S. can be a better way to achieve the desired exposure. One reason for this is that some foreign ETFs are cheaper and larger than their U.S. counterparts. Another important point is that using a local currency denominated fund purifies exposures arising from the underlying index and foreign currency. One point of caution though is the tax treatment of investments in funds domiciled abroad. Every investor should assess their individual circumstances as part of the decision making process. But if your tax situation does not preclude you from investing in ETFs listed abroad, such an approach may bring more transparency to your portfolio. It is a rare feat in the world of finance nowadays.

Norsk Hydro’s (NHYDY) CEO Svein Richard Brandtzaeg on Q3 2015 Results – Earnings Call Transcript

Executives Pal Kildemo – Head, IR Svein Richard Brandtzaeg – CEO Eivind Kallevik – CFO Analysts Dominic O’Kane – JP Morgan Cazenove Jatinder Goel – Citigroup Menno Sanderse – Morgan Stanley Hjalmar Ahlberg – Kepler Cheuvreux Christian Kopfer – Nordea Markets Norsk Hydro ASA ADR ( OTCQX:NHYDY ) Q3 2015 Earnings Conference Call October 21, 2015 10:00 AM ET Operator Good day. And welcome to the Norsk Hydro ASA Third Quarter conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Pal Kildemo. Please go ahead, sir. Pal Kildemo Thank you. Good afternoon. And welcome to Hydro’s third quarter 2015 conference call. We will start today with a short introduction by President and CEO, Svein Richard Brandtzaeg followed by a Q&A session where also CFO, Eivind Kallevik will join. For those that did not see this morning’s webcast of the results presentation this is available on hydro.com. And with that, I leave the word to you Svein Richard. Svein Richard Brandtzaeg Thank you, Pal, and good afternoon everybody. Underlying EBIT for the third quarter of this year was NOK 2.2 billion which is down NOK 0.5 billion from second quarter and up NOK 0.7 billion from the third quarter last year. If we start with the bauxite and alumina, I’m happy to recall a historical low and [provide] alumina cost of [$217] on the back of [indiscernible] as well as increased alumina production at Alunorte and record high production of bauxite at Paragominas which is now at level of 10.9 million tones annualized. This effect was somewhat offset by lower realized alumina prices. In Primary Metal, the falling all-in prices continue of the following — influencing the earnings negatively, but also here a weakening knock at the [isle] against US dollar, US dollar benefit us. Last quarter, we talked about the record downstream results and also the third quarter is seasonally weaker in the downstream segments. The results actually increased in the rolled products area which is a strong development. In Energy, we saw an increase in results due to high production as the delayed [soft] snowmelt came [indiscernible] effect in the third quarter. This was roughly offset by lower energy prices. I am also pleased to announce that we have signed a Letter of Intent with Vale for their 40% stake in the first quarter MRN bauxite mine. We will now take due diligence and see if we will follow through with the construction. [indiscernible] comes to the market, the increasing supply in China and the weakening demand growth in and outside China continues resulting and as stated on [indiscernible] this is in global primary outlet from around 5% to 4%. An increasing [expects] or supply to around 1 billion tonnes this year. The Chinese oversupply continues increasing while the undersupply outside China remains stable. And Chinese exports of semis has declined significantly and are now at levels 10% below the levels we saw last year positively reflecting with the used arbitrage opportunities for export in semis where we have been focused. As we end the final quarter this year, our improvement focus remains high on the agenda. Through the third quarter, we have demonstrated that we are in control of the [indiscernible]. Like for example, bauxite production which is running at close to 11 million tonnes in annualized speed at Paragominas. As we said last quarter, we have managed to lift production at Alunorte but with 5.5 million tonnes, we still have some left to get to nameplate of Alunorte. We are stabilizing and continuing with this production. At the same time, we are delivering operational and commercial improvements. We saw the leasing operating capital and other items would be placed high on agenda they lost to [indiscernible] after the buildup in the first quarter. The lease of 2.1 billion is of course largely related to falling prices, but also [soft inventory] release. We are continuing to deliver some very interesting downstream growth projects, including the automotive body in white line in Grevenbroich, as well as the UBC recycling facility in Rheinwerk, which will be delivered on time and on budget. At the same time, we announced the divestment of a non-core lower margin operation in Italy and a combination of these efforts contributes towards the high grading of portfolio in the current markets which can be described as challenging. Pal Kildemo Thank you Svein Richard. Operator, we are now ready for questions. Question-and-Answer Session Operator [Operator Instructions]. We will now take our first question from Dominic O’Kane from JP Morgan. Please go ahead, your line is open. Dominic O’Kane Hello all. Two questions from me. Just firstly on CapEx, the CapEx reduction that we’ve seen so far in 2015, could you maybe give a bit more details on where and what those optimizations are? And then should we expect a deferral of that NOK 1 billion into next year or will some of that come out of the post — you’ve simply said that not be spent. And my second question is on, again just on the timing of the LME versus index alumina contracts. Could you maybe just help us with a modeling for the next say four quarters? Svein Richard Brandtzaeg Okay, Dominic. On CapEx, firstly the billing has split in two, so roughly NOK 200 million driven by [price retention] where we hope whether it would be around $1, all the facility [indiscernible], and that’s partially offset by the euro development, in fact maybe the investments that we did in Germany. Of the NOK 800 million which we [then named] CapEx optimization performance, a bit part of that comes from the Brazilian operations and it has to do with, I would think it’s the timing of the [indiscernible] that we’re doing at Alunorte and the new [indiscernible] we’re doing at [over the investment] to a large extent we’ll respond into 2016 and partly after 2017. Smaller parts will probably disappear and we kind of fix it, but the bigger part is more [tiniest] than anything else. And then LME to index contracts, we are at roughly [1730] this year and then that will continue to increase in the next couple of years and then in 2018 we will get more to 1820 rule. And in ’16/’17 roughly 60% to 70% will be towards index and then it’s hard to guide you on quarterly basis because it all depends on shipping [province] and so on, [but we are sure we’ll have this one] from an annual perspective. Dominic O’Kane Okay. So for 2016, 60% to 70% will be LME-linked? Svein Richard Brandtzaeg It will be, yeah. Dominic O’Kane Second? Svein Richard Brandtzaeg It will be on the index. And I’m sure about 80%. Dominic O’Kane Thank you. Operator We will now take our next question from Jatinder Goel from Citigroup. Please go ahead, your line is open. Jatinder Goel Good afternoon. A couple of questions, firstly on MRN, what happens if you don’t buy it out, is there a mandate because it doesn’t appear that there is any put option in the hands of Vale as they had for Paragominas, so do you have an option not to buy it and continue with the volumes or is there CapEx which needs to be spend in the mine for which you need to actually get involved as an owner rather than on [stake] partner? And secondly, just on the rolled product divestment, what kind of unit profitability uptake do you see after the divestment and are there any other assets within rolled products or anywhere else in the portfolio which you think are non-core or low margin which you probably want to divest going forward? Thank you. Svein Richard Brandtzaeg Okay, thank you, Jatinder. With regards to MRN, not the buyout, it’s first of all an option depending on what comes out on the due diligence, but the reason why we want — and are looking at acquiring this mine is, the fact that we have got 5% ownership today. We have the stake of 45% in total. So we will have [indiscernible] stronger voice of course with 45% ownership. We will take care more actions with regard to improvements, development of the mine, of course also taking responsibility of possessing any CapEx going forward, but also we will benefit from the income flow which has been the difference between the sales price of bauxite and the cost and production of bauxite. So all in all, we feel that this will be a good fit with us. And this is the first quarter from a [cost scale]. A very efficient mine, it has a very good [strip] ratio and with high quality bauxite, so I think it fits very well with our strategy and oil prices in Brazil. The fact that we also have 2.5 billion to 3.5 billion tonnes surplus of [indiscernible] market, it’s one point there, but also the fact that the majority of this bauxite goes into the [rolled biggest refinery] not there which also needs [sourcing from hammer]. With regard to [Slim], this is, I would say, a commodity standard rolling mill which has been operating in Italy in a low margin market for [indiscernible] with utilization of capacity, the capacity is 92,000 tonnes and the production has been between 50,000 and 70,000 tonnes during the last year. So this is defined as non-core and we’re now divesting it. There are no other rolling mills that are defined as non-core, of course, there are different market segments that we’re serving probably different rolling mills, but we continue to [high grade] the product portfolio in the rolling mills that we have still step up at level of strategic development for rolled products going forward. Jatinder Goel Okay. So if I could just quickly follow-up on the rolling side, would you say, your overall EBIT in absolute terms doesn’t change post the divestment, and just on MRN, is the amount you paid for Paragominas for the remaining 40%, 20% you have already paid and 20% you’re supposed to pay, a good guide for the valuation of MRN, or you think these are two very different assets and need to be looked independently under the light of current market conditions for valuation? Eivind Kallevik Hi, Jatinder, it’s Eivind Kallevik, here. On the rolling side, we don’t have specifics on the margin side and [individual parts], but as Svein has indicated, a rolling part has been operating [indiscernible] capacity and it’s also developed in these kind of products, so it’s fair to assume that it’s been below the average margin as we like in rolled products, and rolled products are fine, and I don’t expect this to have a significant impact on the EBIT performance [with the material] going forward. Svein Richard Brandtzaeg Then it comes to the acquisition part of MRN, I don’t think we will give any further comment and guidance on the acquisition part. We have completed the due diligence and we see the results of that and we’ve probably reviewed it up in a normal fashion. Jatinder Goel Okay, great. Look forward to CMD then if you might have more comments, and thank you. Svein Richard Brandtzaeg Okay, see you there. Operator [Operator Instructions]. We will now take our next question from Menno Sanderse from Morgan Stanley. Please go ahead, your line is open. Menno Sanderse Yeah, thank you. Two questions, please. The first is on rolling and on downstream clearly there may be a [indiscernible] position to make in that area in the next couple of quarters. Has anything changed in terms of your views on that business, that clearly had a decent quarter, but that just could be cyclical, so just interested to hear where you see that business and its lifecycle, I don’t know if you have altered your views fundamentally? And then second and third a few smaller ones, the €40 million to €50 million of costs that the company highlights related to the Slim assets, is that all non-cash or are there some cash related losses in that. And finally, the working cap, is the company confident it can hold on through this working capital inflow in the fourth quarter, so should we assume that that really helps to reduce net debt for the year? Svein Richard Brandtzaeg Thank you, Menno. I’ll take the first question related to the rolling and downstream. I would say that, it is encouraging that we are approving the results in rolled products, but that hasn’t changed the view because we are continuing as [indiscernible] company and we see the benefit of managing the total value chain, and that’s also customers are really appreciating that what we do as a company for downstream products and we have the control of the full value chain. So we are not [sure on] all mines particularly, of course, encouraging to see the record results in the second quarter and [indiscernible] in the third quarter. Eivind, you can answer the other questions. Eivind Kallevik Okay. Let me go through the €45 million to €55 million amount of the EBIT loss or impact on the sale of Slim [top], better than non-cash on metal. And on the net debt, in terms of net operating capital, I think there is a large [level] that we will be able to keep that towards the end of the year. And also like I said optimizing working capital is [filing] the agenda for the management, so we continue to work to [file] more than as we saw this quarter. So we can read as being quite closer to that that we will be able keep that and now we’d be able to do more. Menno Sanderse Okay. And the [2.1] was largely you said price related, so am I fair to assume 80% or so? Eivind Kallevik It’s a split that’s partly fiscal and that’s how it is probably coming down and it’s probably [positive]. Menno Sanderse Okay. Thanks a lot. Operator We will now take our next question from Hjalmar Ahlberg from Kepler Cheuvreux. Please go ahead. Your line is open. Hjalmar Ahlberg So you had quite high bauxite [trips] in this quarter, and I guess you’re selling more of this on the split market. Can you say something on the development on the prices on bauxite that you’re selling [on spot]? Svein Richard Brandtzaeg Hey, Hjalmar. We did not file bauxite production, but of course, we have some of the MRN volumes that we produced and it’ll be exported out for sale to our bauxite customers. I think on average for a year, we have about 3 million tonnes, that would be half of the [position] that we sell, and that of course will [swing] for us from quarter-to-quarter depending on the production levels. Hjalmar Ahlberg Did it have any material impact on the [indiscernible] this quarter in earnings? Eivind Kallevik Not really, no. Not so much to find any significant barriers in the future to give you the difference. Hjalmar Ahlberg And just on the question on CapEx, you said you deferred onto [2016], could you say some new guidance on what kind of levels we should expect for the fixed [income] higher at which 2016 or in line or so? Eivind Kallevik I think we’ve guided in the past, you all know that, also 2016 and also 2017, there is still — that’s an investment that we’ve done and it’ll have quite modern effect on areas in [indiscernible] and then of course it also depends on how we decide on that [file option]. Svein Richard Brandtzaeg So I think we will, in terms of specific guidance of that we will come back on Capital Markets Day, but the guidance will have relative effect on CapEx levels in 2016. Hjalmar Ahlberg And then lastly, have you made the last payment for the Paragominas mine now or is that still to be made? Svein Richard Brandtzaeg This is still be made, the put call option is really a 2016 discussion, and then of course there is a put call between the two parties in 2016. Eivind Kallevik From a CapEx perspective, you will not see that on the [indiscernible] because that’s already been booked as investment, but of course you will see the [cash head backhaul], all the cash development. Hjalmar Ahlberg Yeah, alright. Thank you. Operator [Operator Instructions]. We will now take our next question from Christian Kopfer from Nordea Markets. Please go ahead. Your line is open. Christian Kopfer Okay, thanks operator. Good afternoon. Just a follow-up on the market pricing dynamics, I mean, looking at the LME price [churn] in that premium prices are basically at the same level at the beginning of the century, and obviously you showed the graph today, showing some 20 million out of 60 million tonnes and the market is running at losses, that you have seen this rescaling for some actions and I mean rationally the Chinese — I mean from my perspective at least they are dumping material on the global market, I mean, what is your reasoning on possible anti-dumping measures in Europe? Thanks. Svein Richard Brandtzaeg Well, thank you for the question, Christian. In this call we deal with market pricing dynamics, as I said, this is all about a supply demand game and it’s right, Chinese overall production is [whatnot] we’ll have issues related to this. At the same time as we see that [50%] capacity in the world, as it now below 60% to 70%, but this is in China. So why doesn’t China react which would be quite logical anticipation or that’s the case in Europe, that is two criteria that has to be fulfilled. One is that, some [indiscernible] that are selling below cost of production, and that is a possible period, but we know that the Chinese companies, what we’re seeing out there, they are still excellent. The second criteria that has to be fulfilled is related to that this is a [damage] for the industry. And also [closures] during the last year, obviously no is that it would be difficult for the moment to prove that this is [damaging] industry. It is of course using the prices but that is not enough, we have to prove that this is also really damaging [indiscernible] eventually, so again it could be more difficult in Europe than in US. It goes with US after dry fall [duties] against China, so we remain to be same, but of course the main price signal and the fact that companies are losing money every day. We should call for some action, but we don’t have any control of this, of course and we have to [leave] that to our competitors. Christian Kopfer Okay, thanks. Operator No further questions in the phone queue at this time. Pal Kildemo Okay, as there seems to be no further questions, I suggest we end this quarter’s call. From all of us in Oslo, I would like to thank you for your attention today. If you have any follow-up questions, please do not hesitate to contact us. Have a nice evening and hopefully we’ll see you at our Capital Markets Day on the start of December at the London Stock Exchange. Thank you. Operator That will conclude today’s conference call. Thank you ladies and gentlemen. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

The WisdomTree Europe Dividend Growth ETF: Timing Is Everything

The fund is heavily weighted with best in class European companies. The fund is dividend weighted with a defensive bias. The poor performance seems to be a result of coming to market at the wrong time. Europe seems to have a split personality, at times somewhat fractious and recalcitrant and at other times cooperative and harmonious. The moribund Medieval Period was followed by a lively Renaissance. Centuries of religious wars were followed by an enlightened scientific revolution. In the 20th century, Europe engaged in decades of warfare not witnessed in all of human history. In the wake of that 20th century dark age, Europe determinedly embarked towards a second enlightenment. The basis for this hopeful new age is founded on equality, solidarity and prosperity, achieved through a unified economy. Europe has created an equitable, cooperative capitalism: carefully regulated and open. This new age has led to the creation of a sizable economy of well founded, well established global companies. An opportunity to participate in the potential growth of these companies may be had through the WisdomTree Europe Dividend Growth ETF (NYSEARCA: EUDG ). According to WisdomTree : … WisdomTree Europe Quality Dividend Growth Fund seeks to track the investment results of dividend-paying companies with growth characteristics in the European equity market … The tracking index is WisdomTree’s own proprietary index [DEFA]: … The Index is comprised of 300 companies from the eligible universe based on their combined ranking of growth and quality factors. The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets. Companies are weighted in the Index based on annual cash dividends paid. .. It seems that WisdomTree’s approach to dividend weighting results in a more conservative passive methodology than weighting by market price. An interesting description written by Mr. Jeremy D. Schwartz, titled “Dividends of a Dividend Approach ” , details the reasoning of the approach and the results. For example, it specifically takes into account, the importance of dividends in determining a stock’s price; the fact that dividends historically have provided the majority of the stock markets real return; dividends are an objective measure; dividends reflect management’s shareholder interest and lastly, the demand for income among baby boomers in retirement. The fund itself is a relative newcomer to the industry, incepted in May of 2014. If the fund is weighted by dividends and the quality of earnings, the top weightings should give a good indication of the risk to the investor. (click to enlarge) First it should be noted that the fund has about 200 holdings as of mid-October, however, just over 50% of the funds weighting is concentrated in its top holdings. There is something to point out in those top holdings. There seems to be a repetition of companies held. For example Roche Holdings ADRs on the OTC are assigned the symbol OTCQX:RHHBY . On the “Swiss-6” exchange, it’s ROG.VTX and on another Swiss exchange it’s Ro.SW. They all represent the same company and the same class of stock, hence Roche Holdings has a combined 8.31% weighting in the fund’s holdings. Similarly, Unilever is listed as UL on the NYSE, on the London exchange UNA, on the Amsterdam exchange as UNC as well as others. The point being that in the fund’s top holdings, Unilever holds a combined 3.98877% weighting and Roche 8.31% in the top fund’s holdings. By combining those ,means that the top 50% is really contained in the top 19 holdings, i.e., 9.5% of the fund. The top 50% of the fund is more heavily weighted in Consumer Staples, Health Care and Telecom Service than the entire fund. On the other hand, the top 50% is ‘lighter’ in Consumer Discretionary, Industrials, IT. Lastly the top half contains neither a Financial nor Material Sector allocation. It then appears that the more defensive sectors comprise the heaviest dividend weights. The more cyclical sectors are less weighted and more widely distributed among the fund’s 200 holdings. Below is a summary table of the top 50%, containing 19 companies with a relevant few metrics. Company Fund Weighting Yield Cash Flow Multiple Payout Ratio ROI/ROE Price/Earnings Price/Book Sector Roche [RHHBY] 8.31031% 3.06% 18.10 73.94% 20.07/48.00 23.37 10.96 Health Care British American Tobacco ( OTCPK:BTAFF ) 4.19366% 3.98% 14.71 46.50% 22.57/70.15 17.50 11.74 Consumer Non-Cyclical Anheuser-Busch (NYSE: BUD ) 4.02124% 3.11% 26.58 29.15% 10.25/19.29 19.38 3.77 Consumer Non-Cyclical Unilever [UL] 3.98877% 3.14% 17.37 41.40% 17.63/33.21 22.16 7.00 Consumer Non-Cyclical Novo Nordisk (NYSE: NVO ) 3.16913% 1.39% 21.09 41.30% 75.61/82.48 29.94 23.78 Health Care Bayer ( OTCPK:BAYRY ) 3.09927% 1.95% 14.14 53.35% 7.40/16.71 26.38 4.13 Health Care SAP (NYSE: SAP ) 2.35035% 1.79% 17.35 42.76% 11.82/16.66 23.46 3.47 IT Daimler ( OTCPK:DDAIF ) 2.32166% 3.41% 5.63 32.51% 6.82/17.81 9.62 1.98 Consumer Cyclical Diageo (NYSE: DEO ) 2.18663% 2.99% 15.88 59.43% 13.56/32.63 19.30 5.91 Consumer Non-Cyclical Telefonktiebolasget Ercsso [ERIC] 1.95709% 3.72% 13.59 109.29% 5.73/7.55 27.43 2.07 Telecom Service Inditex ( OTCPK:IDEXY ) 1.79386% 1.67% 26.14 29.56% 26.31/29.39 35.37 9.78 Consumer Cyclical Louis Vuitton ( OTCPK:LVMUY ) 1.73739% 1.92% 15.88 46.08% 9.29/12.71 24.76 3.02 Consumer Cyclical Hennes & Mauritz ( OTCPK:HNNMY ) 1.6948% 3.14% 16.43 *51.54% 41.57/44.71 23.82 9.98 Consumer Cyclical L’Oreal ( OTCPK:LRLCY ) 1.6825% 1.65% 23.28 *37.86% 11.80/12.90 31.27 3.99 Consumer Non-Cyclical Reckitt Benckiser ( OTCPK:RBGLY ) 1.66167% 2.14% 24.96 59.49% 16.66/24.90 28.23 6.90 Consumer Non-Cyclical ABB LTD (NYSE: ABB ) 1.62665% 3.12% 11.23 72.54% 9.54/15.73 16.94 2.90 Industrials Schneider Electric ( OTCPK:SBGSY ) 1.44748% 3.61% 11.19 *40.34% 6.20/9.03 17.64 1.50 Industrials Airbus Group ( OTCPK:EADSY ) 1.4196% 2.08% 9.04 *18.83% 5.61/32.83 16.54 7.94 Industrials Syngenta (NYSE: SYT ) 1.41046% 3.57% 14.77 *52.75% 10.39/15.68 20.92 3.42 Industrials Totals/Averages 50.07% 2.707368% 16.731 49.40% *estimated % of cash flow per share 17.30/28.55 22.84 22.84 The returns are anything but stellar, however, there’s an important reason for this. Returns 1 Month 3 Months 1 Year Since 5/7/2014 Inception WTEDG Index -2.87% -6.18% -6.28 -8.76 EUDG Fund -2.49% -6.56 -5.96 -9.21 The fund is not currency hedged. A comparison with the Euro vs the U.S. Dollar tells the story. (click to enlarge) The fund came to market precisely on the same day the Euro peaked in this time interval at $1.37 per Euro. From there it steadily trended lower to its current $1.12; just over an 18% decline. The fund closed its first day of trading at about $25.25. An 18.25% decline of the shares from that point works out to $20.64, just above its September 29 low of $20.05. Hence, when translated back to USD dollars, the value of the fund ‘shrank’ even though the top line companies continued to perform well. The currency translation is a very important point for the investor to keep in mind. When the European currencies weaken vs the U.S. Dollar, the NAV will decline, even if the companies in the fund are doing well . Hence, purchasing when the U.S. Dollar is strong is like purchasing the fund at a discount. Eventually, Europe will regain its economic footing and European currencies will appreciate against the U.S. Dollar, hence the potential for capital appreciation on a ‘dollar cost averaged’ investment. The same is true of European denominated dividends and distributions. The whole point of the matter is that for investors with risk capital, and the willingness to be patient while gradually accumulating a position knowing that the top 50% of the fund has an average yield of over 2.7% and the fund is defensively allocated, then it’s reasonable to assume that over a longer time horizon the future returns will outweigh current risk. The current poor returns are a matter of having a good idea, but extraordinarily bad timing.