A Review of the S&P 500 Index

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The S&P 500 is one of the widely followed U.S. benchmark equity indices. This index is a better barometer of the U.S. markets than the Dow Jones Industrial Average or the NASDAQ indices. Here are some interesting facts about S&P 500:

  • The index was first published in 1957.
  • The 500 companies in the index are the leading companies in the leading sectors of the U.S. economy capturing 75% coverage of U.S. stocks
  • The sector breakdown is shown in the chart below:

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SP500-Sector-Breakdown

  • The average dividend yield of the index is about 2%.
  • As of Feb 27, 2013 the price return for 1, 3 and 5 years are 14.15%, 11.74% and  1.68%. But the total returns for the same periods are 16.78%, 14.14% and 3.97% respectively due to the addition of dividend returns.

Source: Standard & Poor’s

a) S&P 500 – Long Term Price Returns:

SP500-Returns-Long_TErm

b) S&P 500 – Price Returns since 2000:

SP500-Returns-Since-2000

Related ETF:

SPDR S&P 500 ETF (SPY)

Disclosure: No Positions

BRIC’s Trade With MENA Region Rising

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Trade between the Middle East and North Africa (MENA) region and the BRIC countries is increasing yearly since 2001 as shown in the graph below:

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BRICS-Trade-with-MENA

Source: Two years of Arab Spring: Where are we now? What’s next?, Deutsche Bank Research

Resource hungry China and India are interested in the natural resources of the region such as oil, natural gas and Phosphates.  China is also increasing its food exports to the region. Egypt, the world’s largest wheat importer, imports more than half of its demand from Russia.

The BRIC countries are also some of the major supplier of manufactured products and equipment to the region. For example, Tunisia is the largest market for Brazilian cars in the Arab world. China has a big presence in Algeria with the country home to some 35,000 Chinese workers. India and China are also active in Egypt. Brazil and Russia are slowly starting to increase their investments in the oil and gas sector in the region.

Related ETFs:

Market Vectors Africa Index ETF (AFK)
Market Vectors Gulf States (MES)
PowerShares MENA Frontier Countries ETF (PMNA)

Disclosure: No Positions

Lower, Growing Dividend Yield is Better Than Just Higher Dividend Yield

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Stocks that have low dividend yields but grow the yield consistently each year perform better in the long run than stocks with high dividend yields as discussed in this article. Total return of lower dividend stocks in the long run will be higher than the total return of higher dividend stocks.For example, the telecom sector pays a higher dividend than consumer staples sector. However in terms of returns consumer staples sector stocks easily beat telecom sector stocks.

In this post, let me explain this logic using the examples of three ETFs for three S&P sectors. Please note that the charts below show only price returns. If dividends are included the difference would be much here.

a) Consumer Staples Select Sector SPDR ETF (XLP)  vs.SPDR S&P Telecom ETF (XTL) – 2 Years:

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XLP-vs-XTL-2-Years

 

b) Consumer Staples Select Sector SPDR ETF (XLP)  vs Utilities Select Sector SPDR ETF (XLU) – Long Term:

XLP-vs-XLU-Long-Term

Related ETFs:

Utilities Select Sector SPDR (XLU)
SPDR S&P Telecom (XTL)
Consumer Staples Select Sector SPDR (XLP)

Disclosure: No Positions

Ten Latin American Stocks Offer To Consider

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Markets have been volatile in the days since the Dow and S&P 500 almost reached their all-time highs recently. In the past couple of days the markets are more volatile supposedly due to the election mess in Italy and revived fears of the Euro collapse. According Jan Luthman of co-manager of the Liontrust Macro Equity Income fund in UK  markets are resilient and that the uncertainty in Italy is unlikely to derail global economic recovery. He stated :

Europe is only 18 per cent of the global economy; much of the other 82 per cent is doing rather well.

One way to take shelter from the European and developed world economic issues is to diversify into emerging market stocks. Though correlations between emerging and developed markets have increased in the past few years, emerging markets are still more influenced by domestic factors as opposed to say Italian elections. Since many emerging economies are doing well it is wise to invest in emerging equities.

Ten randomly selected Latin American stocks are listed below with their current dividend yields for consideration:

1.Company: Copa Holdings SA (CPA)
Current Dividend Yield: 2.16%
Sector: Airline
Country: Panama

2.Company: Credicorp Ltd (BAP)
Current Dividend Yield: 1.56%
Sector: Banking
Country: Peru

3.Company: Empresa Nacional de Electricidad SA (EOC)
Current Dividend Yield: 2.95%
Sector: Electric Utilities
Country: Chile

4.Company: CPFL Energia SA (CPL)
Current Dividend Yield: 7.51%
Sector: Electric Utilities
Country: Brazil

5.Company: Fomento Economico Mexicano SAB de CV (FMX)
Current Dividend Yield: 1.22%
Sector: Beverages (Nonalcoholic)
Country: Mexico

6.Company: Administradora de Fondos de Pensiones Provida SA (PVD)
Current Dividend Yield: 7.07%
Sector: Investment Services
Country: Chile

7.Company: Banco Latinoamericano de Comercio Exterior SA (BLX)
Current Dividend Yield: 5.00%
Sector: Banking
Country: Panama

8.Company: Union Andina de Cementos SAA (CEMTY)
Current Dividend Yield: 1.40%
Sector: Construction – Raw Materials
Country: Peru

9.Company: Banco Santander-Chile (BSAC)
Current Dividend Yield: 3.99%
Sector: Banking
Country: Chile

10.Company: Petrobras Argentina SA (PZE)
Current Dividend Yield: 4.22%
Sector: Oil & Gas – Integrated
Country: Argentina

Note: Dividend yields noted are as of Feb 26, 2013

Disclosure: No Positions

A Short Review of Labor Market in MENA Region

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The labor market in the Middle East and North Africa (MENA) region is the most inefficient according to the World Economic Forum’s Global Competitiveness Index. Rising youth population and high unemployment rates is a chronic issue in the region. The IMF notes that Egypt has to create 700,000 new jobs every year to keep its current unemployment rate the same. It is highly unlikely that Egypt would be able to create such high number of jobs per year.

One of the main reasons for lack of job growth in the MENA region is the bloated public sector according to a research report by Deutsche Bank. This is not surprising since in many emerging and frontier markets the state is the largest employer. In the MENA region the dependence on state for employment opportunities become even more severe since private sector growth is limited. The regimes in the region also employ a high percentage of the working population in order to prevent social unrest.

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MENA-Bloated-Governments

From the Deutsche Bank report:

Perhaps more importantly, the public sector accounts for an outsized portion of employment in the Middle East, 9.8% of GDP compared with the global average of 5.4% (see chart 12).Taking only non-agricultural employment, in 2010 public employment constituted 42% of total employment in Jordan and 70% in Egypt.On average, public-sector salaries accounted for 35.5% of government expenses in 2009 for regional governments.

In addition to crowding out the private sector, this system has created an environment in which young job-seekers find working in the public sector more desirable. The 2003 Syrian Unemployment Survey indicated that 80% of young unemployed persons found a public-sector job preferable to a private-sector position.

The large public sector has also bred a lack of economic dynamism in the region, further setting back employment gains.

Related ETFs:

Market Vectors Gulf States (MES)

PowerShares MENA Frontier Countries ETF (PMNA)

Disclosure: No Positions