Monday, February 13, 2012

Profit From Singapore's Growth With EWSS - TheStreet.com

In Barron's annual roundtable issue recently Marc Faber was very upbeat on Singapore for its valuations and dividend yields. For many years the only ETF to access Singapore was the iShares MSCI Singapore Index Fund (EWS). In the last couple of weeks iShares launched the MSCI Singapore Small Cap Index Fund (EWSS).

Similar to the large EWS the small cap Singapore ETF is very heavy in financial stocks at 48% of the fund, followed by industrial stocks at 18%; industrials have a similar weighting in the large cap EWS. The new fund has mid-single digit weightings in the other sectors like energy, tech and consumer staples.
The fund has 37 holdings and will charge a 0.59% expense ratio. It is unlikely that the stocks owned in the fund will be familiar but with such a large weighting to financials what that really means is the fund owns a lot of real estate companies.
Singapore is very difficult for the extreme volatility of that country's stock market. In the last 10 years EWS has had four years where it was up or down 30% or more and three of those four years the move was actually 40% or more. Fundamentally the country is on very firm ground; GDP growth is consistently strong, the unemployment rate is in the low single digits and its housing market did not experience anywhere near the kind of meltdown that occurred in the U.S.
In 1997 there was a market event that has been labeled the Asian contagion which caused a fast panic in all global markets. And although the actual crisis was centered in Thailand EWS was down 43% for that calendar year. This type of volatility should be expected to continue.
Despite the volatility the long-term annualized returns have been outstanding. The annualized 10-year return for the index underlying EWS has been 11.46% compared to 2.92% for the S&P 500. According to data from iShares the 10-year annualized return for the Singapore small cap index has been 17.09%.
Faber mentioned in Barron's that yields in Singapore can be found in the 5% to 7% range. EWS has always been a high-yielding ETF with the trailing yield at 4.05%. While it is too early to know what the small-cap EWSS will yield it is likely to be fairly high given the large exposure to financial stocks.