Analysis: The New Germany Fund (GF)

Photo: Brandenburg Gate

The New Germany Fund – GF is a closed-end fund. The fund was up 25.14% last year based on the share price. The fund’s benchmark is the MDAX which is the mid-cap Stocks Index in Germany. MDAX is composed of 50 mid-caps tocks whereas the DAX (Germany’s main stock market Index) is made up of 30 blue chips.

Past Performance – Total Returns (based on market value):
Year 2007: 25.14%
Year 2006: 44.13%
Year 2005: 18.94%
Year 2004: 30.50%
Year 2003: 102.42%

In all these years, the fund beat the benchmark. Total Returns means stock price appreciation + dividends reinvested.

Stats (as of Dec 31,2007):
Ticker: GF
Net Assets = $480 M
Shares Out = 24.8 M
NAV per share = $19.38
Expense Ratio: 1.00%
Managed by: Subsidiaries of the Deutsche Bank group

Portfolio Composition (as of Dec 31,2007):
Industrials – 40.1%
Financials – 9.5%
Consumer Discretionary – 9.8%
Materials – 14.5%
Other – Remaining %

So industrials comprise a major portion in the portfolio which is very good considering that German companies are global leaders in the industrial field. The fund has some Great companies Puma (shoes, apparels), Hannover(Insurance), Rheinmetall (Industrials)

Pros of the fund:

  1. Provides easy access to mid-cap German firms
  2. Past performance has been very good
  3. Expense ratio has come down a lot in the past few years
  4. Management seems to good since the fund gained some $97M in investment operations in 2007
  5. With unemployment rate under 9% in December 2007, the strong labor market may help the economy which in turn might benefit mid and small cap stocks.

Cons of the fund:

  1. High Expense Ratio of 1%
  2. Fund always seem to trade a discount to NAV
  3. Net Assets under $1B
  4. High Portfolio turnover ratio of about 45% yearly
  5. Mid-cap companies may suffer more during times of economic uncertainties

The Net Assets of the fund increased from $397M in 2006 to $480M by year-end 2007.The NAV was $8.72 back in 2003. Five years later by 2007 it stood at $19.38. The fund has accumulated gains of $198M and losses of $56M.

Germany had a GDP growth 2.5% in 2007 and the labor market is strengthening. Demand for industrial goods in the emerging markets is expected to grow this year. These factors may benefit the mid-cap companies. If you believe in the resilience of the Germany economy, the strength of German companies, technological leadership in many fields and want some exposure to German mid-cap stocks that are not available in the US, then GF may be a good buy at these levels.

Related links:

New Germany Fund Delivers +40% in Annual Gains

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