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Although an wealthy EU member with low unemployment it does not have a top line economy. The domestic financial sector lacks dividend distributions. The Materials sector is the funds best performing sector, even though it’s third in weighting. Mention “The Blue Danube Waltz”, and the Waltz King, Johann Strauss, immediately comes to mind. The waltz is a clever composition of a flowing waltz melody with instrumental interpretations of sounds one might have heard along the banks of the river Danube in 19th century Austria. However, this peaceful gentle flowing melody of the river waltz belies a turbulent history. Austria was almost continually at war in Europe, dating back to Napoleonic era and before. It was at the very center of the spark which ignited powder-keg Europe leading to the Great War, and sided with the axis powers of the Second World War, sharing the fate of the of the defeated. It was perhaps only through luck and a continent totally exhausted by war that Austria remained undivided between the Soviets and Western Europe. Located literally on the border of Cold War era Europe it became a center of intrigue and haunted by its past, until relatively recently. Austria embarked on a new epoch in its long history when it officially became a European Union member nation, January 1, 1995, adopting the Euro four years later. However, what of this new Austrian economy in this new economically united, post-cold war era Europe? In particular, is its economy growing sufficiently to serve as a focused investment for individual investors? For those who wish to consider it, there’s only one fund to choose from: the iShares MSCI Austria Capped ETF (NYSEARCA: EWO ). According Europa.eu , Austria’s per capita GDP, at approximately $46, 400 is well above the EU-28 average and pretty much in line with Denmark, Germany, Ireland, Netherlands, and Sweden. However, its current annualized growth rate is anemic at 0.4%, a full 100 basis points below the EU average. Its debt to GDP ratio is slightly below the EU average at 84.5% of GDP and runs a surprisingly high annualized inflation rate of 1.5%, well above the EU’s 0.6% annualized rate. Its unemployment rate, at 5.6% is well below its fellow EU member nations at over 10%. According to the CIA’s World Factbook , household spending is the largest contributor to GDP at 55%, followed by fixed capital investment at 21.1%, and government spending at 19.5%. Austria is a net exporter of goods and services, generating a trade surplus of 4.3% of GDP. As far as its domestic manufacturing economy, Austria’s Purchasing Manager’s Index indicates expansion, albeit slow, at 52.5 and capacity utilization is at 84%. This compares with the larger Eurozone PMI of 52 and capacity utilization of 81.1. It indicates a good domestic economy but not nearly as strong as, for instance, the U.K. or Germany. The fund tracks the MSCI Austria Investible Market Index 25/50 in U.S. Dollars. The ‘cap’ puts the fund in compliance with internal revenue code, in that: … at the end of each quarter of its tax year no more than 25% of the value of the RIC’s assets may be invested in a single issuer and the sum of the weights of all issuers representing more than 5% of the fund should not exceed 50% of the fund’s total assets… The iShares Austrian fund is nearly identically to the MSCI index, with the exception of a larger than usual cash allocation. It’s rare to see a cash allocation in excess of the fund’s sector allocations. In this case the 2.07% cash or derivative holdings are in excess of both the Utilities allocation, 1.46% and the Consumer Discretionary allocation at 1.72%. Specifically, the fund carries 2.0316% U.S. Dollar cash holding as well as 0.0382 Euro cash holding, totaling 2.0698%. There is also a small, 0.0019%, BlackRock (NYSE: BLK ) short term treasury holding and the fund is currently short, -0.0006% of USD/EUR forward contracts. (click to enlarge) Outside of the cash or derivative, the fund lists 27 holdings of Austrian based companies. Of the 27 holdings, 8 are Financials, 9 are Industrials, 4 Materials, 2 IT, 2 Energy and one each of Consumer Discretionary and Utility. One would expect that the heaviest weight sector to be the best in dividend distributions. This is not the case here. Of the eight holdings, only four have regular dividends and the entire sector allocation yield average is 1.85125%. Five of the eight holding’s major business is in Real Estate, only two in Banking and one Insurance company. Further, three of the holdings did not have appreciable earnings, nor were the Returns on Investment and Equity; three of the holdings recording negative ROI/ROE. Generally, although a large segment of the fund, Austria does not have a strong financial services sector. Financial Holdings OTC Symbol (if listed) Fund Weighting Market Cap (billions) Dividend Yield Payout Ratio Price/Earnings ROI/ROE Beta Sub Sector Erste Group Bank AG OTCPK:EBKDY 18.5952% $12.475 0.00% 0.00 N/A NA/-0.24 1.72 Banking Raiffeisen Bank OTCPK:RAIFY 4.4942% $4.594 0.00% 0.00 N/A NA/-6.12 1.62 Banking IMMOFINANZ AG OTC:IMMZF 4.4717% $2.778 0.00% 0.00 N/A -3.03/-5.42 1.29 Real Estate CA Immobilien Anlagen CAIV.VI* 3.8768% $1.836 2.71% 37.81% 17.59 2.87/4.87 0.72 Real Estate Buwog AG BWOA.VI* 3.2732% $2.075 3.71% 52.85% 14.28 3.47/8.22 N/A Real Estate UNIQA Insurance Group UNIQ.VI* 3.1128% $2.750 5.29% N/A 7.57 10.86 0.63 Insurance Conwert Immobilien Invest CONW.VI* 2.7511 $3,399 0.00% 0.00% 29.57 1.54/3.39 0.73 Real Estate S Immo Ag SIAG.VI* 1.5964 $0.653 3.10% 39.50% 14.34 2.39/6.63 0.55 Real Estate (Data From iShares and Reuters; *VI: Vienna Exchange) For example, Erste Group serves the domestic retail and small to midsized business banking segment. The company has a negative return on equity, does not offer a dividend, and has a very high P/E of over 100. Immofinanz invests in private and commercial properties. It is international serving Germany, Czech Republic, Hungary, Romania, Poland and Russia. However, has a negative ROI and ROE, negative EPS at -0.21 and no dividend growth. As a last example, UNIQA is an insurance group serving Central and Eastern Europe with a diversity of insurance products. However, it should be noted that its largest shareholder is Raiffeisen Bank, the second most weighted fund’s financial holding. Again, the financial sector may be adequate for the domestic economy, it isn’t as strong as other EU financial sectors in the same class. The second heaviest weighted allocation is Industrials. Andritz ( OTCPK:ADRZY ) designs and produces specialized electromechanical, pulp and paper, metals, biofuels and separation systems for those respective industries. Wienerberger ( OTCPK:WBRBY ) manufactures piping, clay blocks/bricks/pavers, ceramic and plastic pipes and water management products. The company is international with operations in Europe and North America. Zumtobel Group ( OTC:ZMTBY ) specializes in lighting solutions and control equipment. It’s small but profitable company manufacturing equipment under different brand names. Although there are a few interesting manufacturers, they are generally domestic and the metrics are relatively weak. Those in the fund seem typical of the Austrian industrial sector. Hence, over 65% of the fund is weak on several scores, particular on dividends, earnings and return on investment or equity. Industrial OTC Ticker (if listed) Fund Weighting Market Cap (billions) Dividend Yield Payout Ratio Price/Earnings ROI/ROE Beta Sub Sector Andritz ADRZY 7.6699% $4.9336 2.36% 24.76% 17.05 12.27/26.30 0.53 Diversified Wienerberger WBRBY 4.5323% $2.250 0.90% 28.82% N/A -4.64/-8.33 1.29 Construction Hardware Oesterrichische Post OTC:OERCF 3.3356% $2.43 6.07% 87.74% 14.40 14.29/23.40 0.33 Parcel/mail Delivery Zumtobel Group ZMTBY 1.9077% $0.980 1.09% 21.08% 55.67 2.18/4.87 1.36 Lighting solutions Flughafen Wien OTCPK:VIAAY 1.6418% N/A N/A N/A N/A N/A N/A Vienna Airport solutions Palfinger OTCPK:PLFRY 1.5042% $1.071 1.34% 13.48% 19.51 6.66/10.34 1.19 Hydraulic Lift Equipment Semperit Holding OTC:SEIGF 1.1757% $0.665 3.81% 265.14% 12.53 7.57/12.11 0.63 Rubber/Plastic Products Porr AG ABGV.VI* 0.9568% $0.778 3.14% 15.11% 12.97 5.64/12.53 -0.27 Construction equipment FACC FACC.VI* 0.9407 $0.364. N/A N/A N/A -0.63/-1.21 N/A Aerospace Defense (Data From iShares and Reuters; *VI: Vienna Exchange) The third largest sector is Materials, comprised of four holdings and seems to be the best sector of the three. Its average dividend yield is over 2.68%, P/E average 27.73 and fairly good return on investment and equity. Voestalpine ( OTCPK:VLPNY ) is a holding company manufacturing extruded, pressed and forged steel products for the automotive and construction industry. Its metric are good with a P/E of 8.43, a 3% dividend, selling at 4.36 times cash flow and an approximate payout ratio of about 40% of cash flow. Mayr Melnhof Karton ( OTC:MNHFF ) as the name suggests, produces packaging in the form of folding carton and carton board, mostly for the food and household product industry. It operates through subsidiaries, 40 locations distributed among 18 countries. Again the metric are surprisingly good: a 2.54% dividend yield, a P/E of 15, a payout ratio of about 38 and sell at about 9 times cash flow. Materials OTC Ticker (if listed) Fund Weighting Market Cap (billions) Dividend Yield Payout Ratio Price/Earnings ROI/ROE Beta Sub Sector Voestalpine VLPNY 8.9081% $6.492 3.02% 40.30% 8.40 7.61/12.76 1.22 Steel products Mayr-Melnhof Karton MNHFF 3.1386% $2.397 2.43% 38.00 15.63 10.30/12.59 0.45 Packaging Lenzing OTC:LNZNF 1.8928% $1.923 1.55% 110.52 71.79 1.22/2.26 0.80 Chemicals RHI OTC:RXHKY 1.809% $0.896 3.73% 56.42 15.09 4.34/10.50 0.91 Ceramics, metals, glass (Data From iShares and Reuters; *VI: Vienna Exchange) Summing up, sometimes individual nation funds, particularly those in the EU can be exceptional performers. This is not one of those funds. In all fairness, the fund is merely tracking the MSCI index, which it does rather well. As an individual EU member state economy Austria does well domestically: employment, social services, income and wealth distribution. Also, as a contributing EU and Eurozone member state, it does play a positive, albeit small part. Unfortunately, though, as a single country focused investment it does not have the strength, at least not yet, to generate significant dividend growth or capital appreciation, mainly because of its weak financial sector, which is focused on Real Estate. As such, an investor might certainly want to keep the fund in mind, but also be aware that it might not provide a positive risk/reward contribution to a long term portfolio. (click to enlarge) As for the fund itself the returns have been acceptable since inception in 1996, at 3.80%, but have generated negative returns over a 10 year period. As the chart indicates the fund had a spectacular run from the low of about $7.00 a share to just over $40.00 before giving up those gains during the global economic crises. The fund has managed consistent dividend returns, however, its 12 month trailing yield is 1.69% and its current annualized yield is 2.30%. 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. Scalper1 News
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