FEZ: 50 European Blue Chips in 1 ETF

During these turbulent market times,it is a great idea to stay with large caps – especially Blue Chips.Many of the blue chips are at attractive levels now. Large caps tend to weather the storm better than small and mid caps. Thats why you will see that small and mid caps are doing worse than large caps this year as more and more investors are switching out of small caps into large caps.Large cap blue chips offer good dividends and offer stability to a well-built portfolio. This brings us to the essence of this post – which is the ETF for the top
50 European Blue Chips.

There are many ETFs for covering Europe.However only one ETF is designed to imitate the DJ Euro Stoxx 50 Index. This ETF is from State Street with the ticker FEZ. DJ Euro Stoxx 50 consists of the 50 blue chip stocks from the Euro Zone. This covers 12 countries which have Euro as their currency.These countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,Luxembourg, the Netherlands and Portugal.The UK and the Scandinavian countries are excluded since they have their own currencies.

ETF Analysis:
FEZ has assets of $453+ Mil. an expense ratio of 0.32%.The Dividend Yield is 2.92% and the PE is 10.50.

Portfolio Analysis:
The fund is heavily weighted in Financials with about 32% of portfolio. So with the current mess in the financial sector this can be considered as a problem.However traditionally European banks have followed strict rules in lending and are not as reckless as the US banks.Yes banks in UK have been hit hard but they are not part of this ETF.Sure many of
the European banks like written off huge losses but that I think they will come out of this fine.It is higly unlikely that they will cut dividends.Societe Generale of France, which is part of this ETF crashed bigtime recently due to one rogue trader.However that is an exception and now the banks has taken measures to shore up its capital base. Many of the country specific ETFs for Europe also have the highest portfolio allocation for financials.So this 32% is not that high and the other sectors in the ETF act as a counter-weight to the financials.

The other two highly represented sectors are the Utilies with 12.5% and Energy at 10.2%.Industrials comprise 7.5% of the fund. Country-wise France and Germany dominate the fund.France has 35.09% and Germany at 27.58% of the fund.

The top 10 holdings are listed below.If a constituent is listed in the US, the ticker is given.

Top 10 Holdings (As of June 5,2008):
1. Total – TOT
3. Banco Santander – STD
4. Telefonica SA – TEF
5. Nokia Oyj – NOK
6. Eni – E
7. Siemens AG – SE
8. Unicredit
9. Suez – SZEZY
10. Arcelormittal – MT

FEZ is currently trading at a premium of 1.14% to its NAV.Usually you want to buy funds which are trading at a discount at a discount.But here since it is not trading at a huge premium we can say that is fairly priced and one can pick up some without worrying too much.

The annualized returns are follows (as of March 31,2008):
1 Year – 5.74%
3 Year – 15.99%
5 Year – 23.90%

Company Profiles:

1.Total S.A. – France
Total (TOT) is the world’s 4th largest multinational energy(oil & natural gas) company.Mainly operates in the production and distribution of oil. Has interests in chemicals as well.Spun-off chemical subsidiary Arkema (ARKAY) in 2006.

TOT has a dividend yield of 3.74% and a PE of 8.88.Total’s revenue per year exceeds $200B and its peers are other giants like BP,Shell,Eni,etc.

2.EON AG – Germany
EON (EONGY) is a multi-utility operating in water,natural gas and electricity

Has a yield of 3.04%.PE is 14.62 and revenue is over $100B.Excellent long-term play.Recently announced a stock split as well. More info on the split can be found here.

3.Banco Santander – Spain
Banco Santander (STD) is a large Spanish bank with a market cap. of over $100B.
Is also the 3rd largest bank in Europe.

Current yield 8.98% and PE is 10.25x.SP has a 5 star rating on STD. STD provides an indirect exposure into Latin American countries since it has operations there as well.

4.Telefonica SA – Spain
Telofonica (TEF) is a giant telecom provider opeating in 23 countries and has more than 218 Million customers.Operates in Europe and Latin America.

TEF has a yield of 4.6% and the beta is 1.1.Annual revenues exceed over $87B.

5.Nokia – Finland
Nokia (NOK) is world class cell phone maker named after a village.Nokia is a household name in many emerging markets as well.

NOK has a 5 year earnings growth of over 19% and the PE is 8.75. YTD the stock is down over 33%.

Profiles of other FEZ constituents will be added soon.

Note: All stock related are as of June 11,2008

One Comment

  1. Great site, I’ve been looking for another site like this. I’m from Canada, so I know about our companies. I will be back for sure to check out the rest of this place.

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