Will E.ON ADR holders Receive Uniper Shares ?

German utility giant E.ON. AG (EONGY) recently spun off its fossil fuel business into a separate company called Uniper SE. US investors in E.ON may wonder if they will receive shares in Uniper.

Here is some background info on Uniper:

Since January 1, 2016, new E.ON and Uniper have been operating as separate legal entities. From now on E.ON will focus on renewables, energy networks, and customer solutions while Uniper will ensure the security of energy supply through its conventional power generation and global energy trading businesses.

At the E.ON Annual Shareholders Meeting in Essen, the company’s shareholders approved the spinoff of a 53.35 -percent majority stake in the Uniper Group to shareholders by a majority of 99.68 percent.

With the publication of the Prospectus a further important requirement for the listing of Uniper has been fulfilled.

On September 9, 2016 the Frankfurt Stock Exchange admitted Uniper SE shares to trading. As planned, the international energy company will be listed on the Frankfurt Stock Exchange’s Prime Standard on Monday, September 12, 2016. Prior to the admission to listing, the spinoff of Uniper from E.ON was entered into E.ON SE’s commercial register.

Source: E.ON 

E.ON ADR holders will not receive shares in Uniper since shares of Uniper SE were not registered under the United States Securities Act of 1933, according to the Citi, the depository for E.ON ADRs.

From a Citi notification:

eongy

E.ON SE announced a distribution of One (1) Uniper SE share for every Ten (10) E.ON SE shares held as of ordinary record date. The shares of Uniper SE were not registered under the United States Securities Act of 1933, and therefore Citi was not allowed to distribute the shares to E.ON SE ADR Holders.

As a result, Citi as the depositary has sold the shares of Uniper SE in the local market and will distribute the net proceeds of the sale to the E.ON SE ADR holders.

The books of E.ON SE have been closed for issuances and cancellations from COB September 9, 2016 and will re-open September 26, 2016 COB.

Source: Citi

So ADR holders of E.ON will receive $1.11 in cash for each ADR they own.

Due to the spin-off of Uniper EONGY shares have declined in the past few days. On Friday it closed at $7.27 not far from the 52-week low of $6.93.

Disclosure: Long EONGY

How to Invest in Eurozone Blue-Chip Companies

Generally Blue-Chips are used to refer to high quality large-cap established firms.Unlike small and medium caps blue-chips tend to less volatile and the probability of a firm going bankrupt is very small.

In order to identify the blue-chips of Eurozone countries, investors can use The EURO STOXX 50 Index. This index is comprised of 50 blue-chips from the Eurozone member countries of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

One simple and easy way to invest in these firms is via the SPDR® EURO STOXX 50® ETF (FEZ). This ETF mimics the performance of the index. The fund has a dividend yield of 3.30% and an assets base of over $2.6 billion. The top three sectors in the fund are financials, industrials and consumer-staples.

The full list of the fund’s holdings are shown below:

S.No.NameSector
1Total SAEnergy
2Anheuser-Busch InBev SAConsumer Staples
3Siemens AGIndustrials
4SAP SEInformation Technology
5SanofiHealth Care
6Bayer AGHealth Care
7BASF SEMaterials
8Unilever NV Cert. of shsConsumer Staples
9Daimler AGConsumer Discretionary
10Allianz SEFinancials
11Banco Santander S.A.Financials
12BNP Paribas SA Class AFinancials
13Deutsche Telekom AGTelecommunication Services
14ING Groep NVFinancials
15Telefonica SATelecommunication Services
16LVMH Moet Hennessy Louis Vuitton SEConsumer Discretionary
17L'Oreal SAConsumer Staples
18AXA SAFinancials
19Danone SAConsumer Staples
20VINCI SAIndustrials
21Schneider Electric SEIndustrials
22ASML Holding NVInformation Technology
23Banco Bilbao Vizcaya Argentaria S.A.Financials
24Industria de Diseno Textil S.A.Consumer Discretionary
25Iberdrola SAUtilities
26Air Liquide SAMaterials
27Eni S.p.A.Energy
28Enel SpAUtilities
29Airbus Group SEIndustrials
30adidas AGConsumer Discretionary
31Nokia OyjInformation Technology
32Intesa Sanpaolo S.p.A.Financials
33Fresenius SE & Co. KGaAHealth Care
34Munich Reinsurance CompanyFinancials
35Orange SATelecommunication Services
36Royal Ahold Delhaize N.V.Consumer Staples
37Deutsche Post AGIndustrials
38Societe Generale S.A. Class AFinancials
39Essilor International SAHealth Care
40Royal Philips NVIndustrials
41CRH PlcMaterials
42Bayerische Motoren Werke AGConsumer Discretionary
43Unibail-Rodamco SEReal Estate
44Safran SAIndustrials
45ENGIE SAUtilities
46Volkswagen AG PrefConsumer Discretionary
47Compagnie de Saint-Gobain SAIndustrials
48Vivendi SAConsumer Discretionary
49Deutsche Bank AGFinancials
50E.ON SEUtilities
51STT INSTL LIQUID RESERVES STIF USDUnassigned
52AIR LIQUIDE SA RIGHTUnassigned
53EuroUnassigned
54Aperam SAMaterials
55U.S. DollarUnassigned

Source: SPDR

Another way investors can access these European blue chips is to invest in the stocks of these firms individually. With this approach investors can pick and choose the sectors or companies that they want to focus on and avoid the ones they don’t want.

Disclosure: Long Banco Santander SA (SAN),  Banco Bilbao Vizcaya Argentaria S.A (BBVA) , E.ON SE (EONGY), AXA Group (AXAHY) and ING Groep N.V. (ING)

Private Consumption as a Percentage of US GDP

Private consumption contributes less to economic decline and recovery than business investment and net exports, according to an article by Ken Fisher of Fisher Investments.

The US economy is a consumer-driven economy with consumer spending accounting for 69% of the GDP. However during economic recessions consumer spending reduces but jumps back quickly than the sharp decline in business investment. So much of the attention of the media is focused on consumer spending it is the business investment that contributes most to recession and recovery.

Private Consumption as a Percentage of US GDP – Chart:

Click to enlarge

private-consumption-as-a-percentage-of-us-gdp-chart

Source:  Consumers are king: Fisher’s financial mythbusters, Money Observer, June 7, 2016

The above article is another fascinating piece by Mr.Ken busting one of the many financial myths that are often thrown around by everyone.

On The Rise And Fall Of Commodities

Commodities have been in a downward trend for many years now though they have recovered slightly this year. As China’s voracious appetite for all types of commodities decreased commodities declined sharply. Other countries were unable to drive the demand like China did.

According to a report from Schroder’s China’s demand for commodities created a super cycle in commodity prices. From the report:

Between December 1999 and June 2008, the Bloomberg Commodity Index (BCOM, previously known as the Dow Jones-UBS index) delivered total returns of around 15% a year with similar volatility to equities, during a period where equities barely broke even 2 (Figure 1).

Click to enlarge

commodities-vs-equities-return

Note: 2.BCOM was established in 1991 and is more diversified by commodity than the longer standing S&P GSCI index (GSCI, established 1970), which has an over 70% allocation to the energy sector. In this paper we have used BCOM to represent commodity returns where possible as it is more reflective of the broader commodity universe. However, when longer term analysis has been carried out we have used the GSCI as a result of its longer track record.

Source: Reappraising the case for commodities by Duncan Lamont, Schroder’s

Commodities are down 50% from their 2011 peak based on the Bloomberg Commodity Return Index. They are off by 60% based on another benchmark, the GSCI return index.

A few points to remember about commodity investing:

  • Commodities can be highly volatile relative to equities.
  • Investing in commodities either directly or thru derivative products like futures are not suitable for most retail investors.
  • Investors in oil have to understand and deal with unique situations such as Contango.
  • Though Wall Street has been pushing commodities as another asset class to retail investors, they are not. Other than a few exceptions like gold most other commodities are best avoided.

Here is another chart comparing the performance of commodities and equities:

Click to enlarge

commodity-vs-equity-return

Source:  Natural Resources – Uncovering Opportunity in a Secular Commodity Bear Market, T.Rowe Price