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An interesting mix of economic alliances. A niche economy well integrated within the EU manufacturing network. Surprisingly consistent positive long term returns along with dividend distributions. One of the many nice things about 21st century Europe is the way it manages to lead the way in the arts, science, thought and politics being somehow, thoroughly ‘today’ and yet, managing to hold on to its own unique traditions, culture and ambience. Take the Kingdom of Belgium , for instance. Most people might think of Belgium as a quaint and charming tourist destination. Well, there’s more to it than that. In name, it’s a Kingdom, in actuality, a federation: Dutch Speaking Flanders, French speaking Wallonia and the capital, Brussels all governed by a parliament. Just briefly: after the 1830 revolt against King William I of Netherlands, Belgium seceded and formed its own government, under King Leopold I, succeeded by his son, Leopold II, Belgium evolved into a European industrial power to be reckoned with. In 1921, Belgium and Luxembourg formed an economic union. In 1944, a second economic-political union was formed with Netherlands and Luxembourg called the Benelux union. In 1957, the three nations of Benelux were among the original signatories to the Treaty of Rome, the foundation of today’s European Union. It’s interesting to note that the Benelux brand name and the Belgium-Luxemburg economic union still exist inside the larger EU, today. According to Europa.eu , geographically, Belgium is rather small, covering approximately 11,787 mi 2 , home to 2.2% of the total EU population; about 11.204 million citizens. So clearly, Belgium is far more complex than a mere tourist destination. Fund Return vs Index 3-Months Year to Date 1 Year 3 Year 5 Year 10 Year Inception 3/12/1996 EWK Market Shares 1.24% 4.48% 2.89% 12.60% 8.11% 2.14% 5.27% EWK Total Return 2.951% 6.48% 2.26% 12.56% 7.99% 2.11% 5.27% MSCI Index N/A N/A 1.81% 12.17% 9.38% 2.48% 5.57% (Data From BlackRock) One would think that such a small state could not provide notable investment returns. Surprisingly, that is not the case. In fact, the iShares MSCI Belgium Capped ETF (NYSEARCA: EWK ) has done reasonably well over the entire 19 ½ year history of the fund, even during the most difficult EU recession years. Further, it’s the only Belgium focused ETF with over 95% Belgium holdings. The first question to ask is about the general nature of the Belgium economy, including imports, exports and primary trading partners. (Data from Trading Economics) Belgium’s GDP growth measured 0.4% for the first two quarters of 2015, pretty much in line with the EU-28; Per capita GDP is 23% higher than the EU-28. Belgium does rank 15th in EU-28 unemployment, high, but below the EU-28 average. As an export economy, Belgium runs a positive balance of trade of about $3.07 billion; however, is a net borrower with a current account deficit of $1.827 billion. Lastly, wealth is well distributed as demonstrated by its GINI index of 29.9. In a nutshell, Belgium is reasonably well off nation with average growth and above average wealth distribution. (click to enlarge) (Data from Trading Economics) Belgium trades mainly within the EU. Almost 71% of total exports are destined for its top ten global trade partners; over 59% of total exports are destined for EU member states. The leading three destinations are Germany, 15.85%; Benelux partner Netherlands, 14.64% and France at 11.79%, of total exports. Similarly, over 74% of Belgium’s imports originate from its top ten global trading partners; over 59% of total imports originate from EU members led by Netherlands, 19.37%, Germany, 15.14% and France at 11.14%, of total imports. The next reasonable question, knowing now Belgium’s global trade relationships, is about Belgium’s primary exported and imported goods. Indeed, Belgium’s exports are well diversified. Belgium’s top 40 (of over 1200) exports account for just over 50% of total exports and similarly Belgium’s top 40 (of over 1200) imports account for about 50% of total imported products. (click to enlarge) It should be noted that, usually, when there’s a similarity between imported and exported products, it’s an indication of a semi -manufactured product trade. That is to say, partially completed or bulk products are imported for further processing or completion, then exported to another destination. What it all adds up to is that 30% of Belgium’s niche economy is nestled in the EU manufacturing network and a function of inter-EU trade. How, then, does the iShares MSCI Belgium Capped ETF allocate investment capital? The first thing to note is the fund’s sector allocation. The fund most heavily weights Consumer Staples at 32.06% and Financials, 27.42%; about 60% of the fund. This is followed by Health Care, 11.03%; Materials, 9.68%; Discretionary, 4.32% and Telecom, 4.17% comprising about 30% of the fund. The remaining 10% is allocated to IT, 3.64%; Industrials, 3.58%; Energy, 2.54%; Utilities, 1.33% and a small cash holding. (Data from BlackRock) Consumer Staples is the heaviest weighted sector. Anheuser Busch Inbev ( OTCPK:AHBIF ) has a 22.82% fund weighting, hence an overwhelming 68% of the Consumer Staple sector. Anheuser Busch is a global heavyweight with 200 beer and beverage brands spanning the globe. Recently Anheuser Busch attempted a takeover of SABMiller ( OTCPK:SBMRY ). If this takeover is successful for Anheuser, it will give the company a major presence in Africa and Asia; two markets where it is currently lacking. Top Consumer Staple Holding Fund Weighting Market Cap (billions) Yield Payout Ratio Price/earnings Price/Book Beta Anheuser Busch Inbev 22.8168% $174.9 2.31% 60.53% 18.86 3.69 0.81 (Data From Reuters and Yahoo!) Of the 27.41% of the Financial Sector 17.15%, or about 60% of the financial allocation, is concentrated in three holdings, KBC Group ( OTCPK:KBCSY ), Ageas ( OTCPK:AGESY ) and Groupe Bruxelles Lambert ( OTC:GBLBY ). Briefly, KBC is a financial holding company for KBC Bank and KBC Insurance, serving Belgium, central and Eastern Europe and Russia. Ageas is primarily an insurer, serving, Belgium, the United Kingdom, Continental Europe plus a wholly owned subsidiary in Hong Kong. Lastly Groupe Bruxelles Lambert [GBLB] is also a holding company, whose portfolio is focused on diversified industrials in France and Spain, plus wholly owned subsidiaries in the ‘Benelux region’, Germany and Ireland. Top Financial Holdings Fund Weighting Market Cap (billions) Yield Payout Ratio Price/earnings Price/Book Beta KBC Groep 8.7022% $26.37 2.66% 44.33% 12.49 1.39 2.36 Ageas 4.7507% $9.68 3.01% NA 9.27 0.75 1.66 Groupe Bruxelles Lambert 3.6953% $12.76 2.96% 41.20% 10.34 0.79 0.93 (Data From Reuters and Yahoo!) The third major sector is Health Care at 11.03%. Of the six Health Care holdings, UCB ( OTCPK:UCBJY ) is weighted heaviest at 5.3852% of the fund, or 48.8% of the sector’s holdings. UCB is classified as a biopharmaceutical, focusing on immunology and the central nervous system. UCB is Belgium based with international reach: 25 offices distributed in Europe as well as the Asia-Pacific region, the Americas and Central Asia. Top Health Care Holding Fund Weighting Market Cap (billions) Yield Payout Ratio Price/earnings Price/Book Beta UCB 5.3852% $14.84 1.17 NA 60.10 2.24 0.48 (Data From Reuters and Yahoo!) The next major sector, Materials has five holdings dominated by Solvay ( OTCPK:SVYZY ), 3.5838% of the fund and Umicore ( OTCPK:UMICY ) at 2.811%. Together they comprise 6.3948% of the fund and thus about 66.1% of the Material sector’s holdings. Solvay focuses on chemicals used in consumer goods, healthcare, and agriculture, to name a few as well as the development of advance materials, chemicals and polymers. Umicore is similar producing industrial chemicals, metal alloys materials. It’s interesting to note that Umicore generates most of its revenues from clean technologies. Top Material Holdings Fund Weighting Market Cap (billions) Yield Payout Ratio Price/earnings Price/Book Beta Solvay 3.5838% $9.39 2.58% 92.60% 26.71 1.17 1.31 Umicore 2.811% $4.705 2.00% 47.34% 23.58 2.27 0.95 (Data From Reuters and Yahoo!) For the sake of completeness, the table below briefly outlines the top holding in the remaining sectors along with dividend yields and payout ratios when available. Top Remaining Sector Holdings Business Sector Fund Weighting Yield Payout Ratio Price/earnings Price/Book Beta Telenet ( OTCPK:TLGHY ) Diversified media Discretionary 2.0525% 0.00% 0.00 32.15 NA 0.58 Proximus ( OTCPK:BGAOY ) Mobile and Internet Telecom 3.2881% 0.00% 0.00 18.29 3.51 0.62 Melexis ( OTC:MLXSF ) Semiconductors IT 1.3538% 2.19% NA 18.51 7.28 1.19 Bpost ( OTCPK:BPOSY ) Parcel Post Industrials 1.5226% 4.36% NA 14.90 5.50 NA Euronav ( OTC:EONVY ) Crude oil Transport and Storage Energy 1.8389% 3.59% NA 16.96 1.36 1.34 ELIA System ( OTC:ELIAF ) High Voltage Transmission Utilities 1.3307% 2.62% 54.65% 15.61 1.16 0.15 (Data From Reuters and Yahoo!) The fund itself has 8,800,000 shares outstanding with a 20 day average volume of almost 64,000 shares. The fund’s price to earnings ratio is 21.52 and price to book multiple is 1.89 times. The beta is low at 0.87, and it deviates from its 3 year average price by about ±12.4%. The fund has a current annualized yield of 3.38% and a twelve month trailing yield of 2.21%. Lastly, the fund is trading at a premium of 0.68% to its net asset value. Lastly, it has at least one annual dividend per year since inception, 12 March, 1996. (click to enlarge) To sum up, here’s a single country fund outperforming larger single country EU member focused funds. It has a niche economy in the EU as well as two other regional economic unions. Belgium is also home to dividend paying global powerhouse companies. All in all, for those investors wishing to construct their own global economic ETF portfolio, here’s a relatively unknown single country fund, with good returns, and perhaps a guide to a nice vacation destination! 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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