Mexican ADRs – Airport Operators !!

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Airports are an integral part of any country’s infrastructure.Mexico is no exception.
Mexico benefits greatly from the tropical climate and the country’s proximity to US and Canada. Tourists looking for a quick easy getaway to sunny destination often prefer Mexico. Hence it makes sense to invest in some of the industries that cater to this tourists. Airport operators is one such industry.

The following are some of the Mexican companies that operate airports and related facilities in the country:

1.Grupo Aeroportuario del Pacifico S.A.B. de CV – PAC

2.Grupo Aeroportuario Centro Norte, S.A. de C.V. – OMAB

3.GRUPO AEROPORTUARIO – ASR

Global Infrastructure ETFs !!!

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Is there a truly GLOBAL INFRASTRUCTURE fund?
Unfortunately No.

There is not a truly global infrastructure fund in the market currently. By fund I mean an ETF. I don’t think there is a mutual fund either.

What is infrastructure?
It means basic things such as hospitals,roads,bridges,railways,ports,clean water,electricity,sewer systems,airports,telephone services etc. So companies that can build and operate these services will be engineering companies,airport operators,utilities,telephone companies etc.

In which countries infrastructure is a hot growth industry now?
Currently the emerging countries of Brazil, China and India are building infrastructure like never before to meet the demands of an expanding economy.Since Brazil has some good infrastructure for many years now, it is not building as much as the other countries. Some say Brazil is ahead of the other BRIC countries by some 20-30 years.

On the other hand, China and India do not have quality infrastructure until now.So these two countries are investing heavily in roads, bridges, tunnels, utility systems,airports etc. Even with this current buildup of infrastructure, these two countries have a long way to go before their systems are on par with developed countries such as Germany for example.

Picture: Trans-Amazon highway in Brazil

Picture: Toll Booth in India
Picture: Roundabout in Xiamen, South China

Russia seems to be catching up with infrastructure development.Other countries where infrastructure development is needed are the developing countries like countries of Africa, South and Latin America, Asian countries etc. Developed countries have a need for the maintenance and upgrade of existing systems.

What is a global infrastructure fund?
As the name suggests, it is a fund that invests(or supposed to invest) in companies that operate in the fields mentioned.

What are the funds available now and what do they invest in?
There are two ETFs that call themselves the “global infrastructure” etfs. They are:

1.ishares S&P; Global Infrastructure Index Fund – IGF

2.State Street SPDR FTSE/Macquarie Global Infrastructure 100 ETF – GII

IGF:
This ETF was launched last December and has only 27 Million $ in assets.This is not much considering the title and the hot growth taking place in developing countries.Some 61% of the assets are in utilities and energy companies. Only about 41% is invested in industrial firms that build and operate infrastructure.
The fund has a yield of 2.02% an expense ratio of 0.48%.

And most the portfolio consist of companies from the developed markets. For eg. – US represents about 24%. Hence this fund is wrongly titled as a global infrastructure fund.

GII:
Has $74 Million in assets and has grown about 10% since inception.

The fund’s objective is stated as:
“The SPDR® FTSE/Macquarie Global Infrastructure 100 ETF, before expenses, seeks to closely match the returns and characteristics of the total return performance of the Macquarie Global Infrastructure 100 Index (ticker: MCGIGIDT) an equity index based upon the global infrastructure industry market.”

This fund SHOULD be renamed as an utility fund. Since State Street already has a utility fund, the folks there seem to have created this “infrastructure” fund to attract investors.

The fund has 89.58% in Utilities.Industrials make up less than 4%. Not sure how utility companies are supposed to build all kinds of infrastructure such as airports,ports,highways etc. The fund has an expense ratio of 0.60% and has mostly developed country companies. US alone accounts for over 36%.Brazil and China account for less than 1%.

One can only hope another fund company launches a truly global infrastructure fund some time in the future.Until then, investment in the above ETFs does not make sense for the reasons mentioned above.

For more details:
http://www.amex.com/?href=/etf/EtMain.jsp?etfsection=sites6
http://www.ishares.com/product_info/fund/holdings/IGF.htm

More Bank ADR Stocks !!

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A few good ADR stocks trade under the radar. Though they may be thinly traded they offer nice returns to astute and patient investors.

Here are a few of them:

1. South Africa – Absa Bank – AGRPY
The stock is down YTD about 14%.

2. South Africa – Ned Bank – NDBKY
The stock is down YTD about 27%.

3. Czech Republic – Komercni Banka – KMBNY
The stock is down YTD about 9.42%.Pays dividend yearly.

What are the risks of investing in foreign stocks?

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Investing in foreign countries has many risks associated with it.Some of the risks are discussed below:

1. Currency Risk
This risk is due to the fluctuations in currency exchange between the currency of the country invested and the US $. This exchange rate risk can affect your returns either positively or negatively. For eg. – Lets say you invest in a Spanish ADR. All dividends paid by this stock are in Euros. The Euros are then converted to US$ in order to pay an investor. If the value of Euro appreciates even more against the $, then that dividend amount in US$ will decrease. If earlier the dividend paid was 3 Euros and the exchange rate was 1.5 EUR to a $, you will get 2$ in dividends. If the exchange rate goes to 3 EUR to a $, then that dividend will be only 1 $ (cut by 50%).

2.Country Risk
Another risk that affects foreign investments is called the country risk. This is due to change in political situations in the country you invested. For eg. – lets say you invested in Brazil under the current government which is democratic. IF after a few years, if a military dictator takes over Brazil that will have dramatic impact on your investments since the dictator may change the current investment policies.

Regulatory risks are another part of country risk. If a country imposes more strict regulatory requirements that may affect the foreign investments negatively.

3.Information Risk
Getting information on foreign companies can be difficult and challenging. Unlike US stocks, many foreign countries do not require companies to share information with their investors regularly. Language is another important issue.For eg .- many
companies might have websites that contain information only in the native language.

4. Time Differences Risk
This risk is due to differences in time between US and other countries.This risk can be an advantage or a disadvantage. For eg. – if an investor invests in the Japanese market and the stocks there collapse when the market markets, then it will still be night time in the US. The investor might not be aware that his Japanese holdings have crashed. It maybe too late to get out when the investors becomes aware of the situation the next day morning.

5.Liquidity Risk
Liquidity is an important risk when investing in foreign stocks. Unlike the US, companies in some foreign stocks can be highly illiquid. This can be serious problem when the market crashes. The US investor will have trouble getting rid of his/her stocks when there is the liquidity problem. There may not any buyers for the stock especially when the quantity involved is high.

6.Nationalization Risk
This risk simply means that a country’s government seizes and takes over private assets. This usually happens when there is a big change in the political system. So a company that had invested millions in factories and and other assets might suddenly become worthless since the government may take control of its assets. For eg. – when political systems changes in Cuba, Vietnam, Russia etc. many of the foreign companies that had invested in them lost their assets and investors suffered because of this government interference in the functioning of private markets.

Considering all the risks above, does it make sense to invest in foreign stocks?

Absolutely Yes. The trick here is to select and invest in countries which do not/may not have some of the risks. For eg. – many conservative US investors invest heavily in Europe since it is highly unlikely that an European country like Germany or Holland might have a political upheaval in the near future. The same cannot be said of say Colombia for example.

Utility ADRs with 5% dividend or more !!!!

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There are many foreign utility stocks that have a dividend yield of 5% or more.In the current market conditions, they look attractive considering the yield and cheap stock prices.

The following are a few good utility ADRs with high dividends:

1. Scottish & Souther Energy PLC – UK – SSEZY
Yield = 5.18%

2. Companhia Energetica de Minas Gerais – Brazil – CIG
Yield = 10.25%

3. CPFL Energia SA – Brazil – CPL
Yield = 9.85%

4. Enel Spa – Italy – ENSTY
Yield = 5.43%