The Top Five European ETFs

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The ETF industry continued to grow last year in Europe despite the credit crunch. Assets Under Management (AUM) grew by 6.49% from the start of the year. In 2008, the widely watched European Blue Chips Index DJ Euro Stoxx 50 dropped by 44.37%. By the end of the year, there were 1,553 ETFs listed in European Exchanges.About 67% of all ETF assets in Europe were invested in equity ETFs.

Of the hundreds of ETFs available, the following are the top five ETFs in Europe as of 2008 end based on assets held:

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Source: ETF Industry-Europe Market Review 2008 from Lyxor Asset Management (a division of Societe Generale, France)

The number two ETF EONIA fom db-xtackers is a money-market funds cash ETF. The top ETF is the Lyxor ETF DJ Euro STOXX 50 from Lyxor with over 5.14 B EUR in assets. As of today March 11,2009 the AUM has shrunk to 4.075 B EUR. The Euro Stoxx 50 Index based ETFs occupy two spots in the list above. This is because this index gives easy exposure to the top 50 blue chip companies in the Euro Zone (excl. UK).

US-based investors can invest in the DJ Euro Stoxx Index via the SPDR DJ Euro Stoxx50 ETF (FEZ) from State Street Global Advisors. The expense ratio is 0.29% and the total net assets is $96M. The current dividend yield is 7.38% though that may fall since the index has many financials such as ING (ING) which may cut dividends. However about 80% of the portfolio is in non-financial sectors where dividends are relatively safer. France and Germany account for 70% of the portfolio.

Stimulus Packages Comparison: US Stimulus Is The Largest

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Since the credit crisis began, governments around the world have passes many stimulus packages to restart stalled economic growth. For example, today the government of Malaysia announced a second a stimulus package of US$16.3B just after announcing the first stimulus four months ago. In the US, many stimulus packages have been announced during the past and the present administrations. On Feb 13, the US Congress approved a new package of $787B which is 5.6% of GDP. The initial impact of this package will be seen in the years 2009-11. Other countries such the UK, Germany, Canada, etc. have also announced stimulus packages. I wanted to find out how these packages compare across the countries.

My research led me to a paper titled “The Size of the Fiscal Expansion: An Analysis for the Largest Countries” released by IMF last month. The following are some interesting takeaways from this paper.

Of all the large countries that have passed stimulus packages, the US stimulus is the largest in terms of GDP during 2008-10.

Comparison of Stimulus Packages in Large Countries

Stimulus Packages by Country

Source: IMF

The US package amounts to a cumulative 4.8% of GDP during 2008-10. According to Wikipedia, the 2008 US GDP is estimated to be $14.3 Trillion. India and Italy have the lowest packages at less than 1% of their GDP.

Next to US, China has the largest stimulus. Though UK is one of the worst affected countries, the package in the same period is less than Germany’s figures.

Infrastructure spending by the US is a small portion of the overall packages. As per U.S. CBO and IMF staff estimates, just $32B will be spent on infrastructure projects in 2009 and $47B each in 2010 and 2011.Countries with high public debt have passed smaller fiscal stimulus packages (India, Italy as referenced above). Of the nine countries listed above, only Canada, U.S. and Japan are providing tax benefits to both companies and individuals. The rest of them provide tax benefit only to individuals. One common theme across these countries is that all are planning to invest more in infrastructure project.

You can download the complete paper here.

Pension Funds: Which OECD Countries Are More Exposed To Equities?

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One of the fiscal implications of the current financial crisis is the effect on funded pension plans in many OECD countries. Some of the countries’ pension fund portfolios have high exposure to equities and mutual funds. Many of the mutual funds in these countries are also heavily invested in equities.

The following diagram shows the Pension Plan Assets held by Country as of 2007 end (click to enlarge):

OECD Pension Plans

Source: IMF

Research Paper: The State of Public Finances: Outlook and Medium-Term Policies After the 2008 Crisis published March 6,2009

The stripped circles in the above figure shows that 16 countries have pension fund investments in equities and mutual funds greater than 10% of GDP. The countries with high exposure to stocks are Australia, the U.S., Canada, Iceland, The Netherlands, Switzerland, Denmark, and the U.K. Of the emerging market countries South Africa, Chile, and Brazil are more exposed. Countries such as Mexico, Argentina and Norway have limited exposure to the equity markets.

In the US, the asset base of pension plans for the various government workers is huge. At the end of October 2008, the $4 Trillion assets held by these plans had fallen by roughly $1 Trillion. As these plans are defined-benefit plans, the governments will make efforts to fill the gap in the future years either by raising the contributions from current employees or by raising taxes. However this does not affect the social security plan since those assets are not invested in the markets.

If employers go under taking the defined-pension plans with them, then the Federal agency Pension Benefit Guaranty Corporation (PBGC) guarantees payment to plan participants. However this creates a huge liability for the federal government.

According to a Mercer study in the US, the pension plans of the S&P 1500 companies have lost half a Trillion $ in 2008, of which 80% was lost in the last quarter.

The Top 20 Global Banks in 2009 by Brand Value

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The London-based world’s leading band valuation consultant, Brand Finance, published the Top 500 Global Banking Brands for 2009 last month. They have published this annual report since 2006 in partnership with The Banker magazine. This list is released annually and is based on data from the world’s largest stock exchanges. Each brand is assigned a ” brand rating: a benchmarking study of the strength, risk and future potential of a brand relative to its competitor set as well as a brand value: a summary measure of the financial strength of the brand”.

HSBC LogoBrand Names – Why are they important?

According to Brand Finance:

“Brands are the most valuable intangible assets in business today. They drive demand, motivate staff,secure business partners and reassure financial markets. Leading edge organisations recognise the need to understand brand equity and brand value when making strategic decisions.”

The following table lists the Top 20 Global Banking Brands for 2009:

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Note: AAA = Extremely Strong, AA = Very Strong, A = Strong

Key points from this year’s report:

1.Chinese bank brands are becoming powerful as two of these brands are in the list above.

2. The brand value of developed market banks have fallen more than other banks. US and UK banks have lost 40% and 15% of their brand value respectively.

3. The total number of US banks in the top 500 list has dropped to 95 banks this year.Seven US banks are in the top 20 list which is very interesting since the credit crisis started here many more banks have been shutdown by regulators than any other country.

4. HSBC (HBC) received the highest ranking with a brand value estimate of $25.3 billion and the highest brand rating of AAA+. As the “World’s Local Bank”, HSBC provides customized high quality services in its retail division tailored to each region where it operates. After holding up relatively well compared to other British banks, HBC last week announced a cut in dividend payout by 29% for the year and a rights issue.

5.The only emerging markets bank in the top 20 is Banco Bradesco (BBD) from Brazil other than the two Chinese banks.

6.Spanish bank Santander(STD) will become the 3rd largest private sector bank in Brazil after merging its operations with Banco Real.

7. Financial institutions such as American Express(AXP), Citibank(C), Bank of America (BAC) still have high brand premiums though their market capitalizations have reduced significantly.

You can download the full report here.

Oil ADRs: Which Stock is Leading So Far This Year?

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The S&P 500 Index is down 24.43% as of March 5, this year. The energy sector components within the index have fallen 21.11% in the same period. As the recession deepens, the consumption of gasoline has decreased. After soaring to over $140 last year, Crude Oil is now in the $40 range. Today the April delivery of crude oil trades at $44.25 per barrel.

Some experts have predicted that crude will fall to $30 level some time this year. However this has to be taken with a grain of salt since last year similar experts said that the price will cross over $200 per barrel.

In the US markets, 21 ADRs related to the oil& gas production, distribution and equipment service are traded. The following is the performance of these ADRs as of March 5:

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Chart (click to enlarge):

Oil ADRs

The only oil ADR that is in the positive territory this year is Petrobras (PBR) of Brazil. The giant oil companies – TotalFina (TOT), Royal Dutch Shell (RDS.A , RDS.B), British Petroleum (BP) – are all down over 20%. The worst performing stock is YPF of Argentina with a loss of 61%.

The recently listed EcoPetrol (EC) of Colombia is holding up well. Eni Spa(E) of Italy is an attractive play at current levels since it pays a dividend of 10.66% and operates both in the production and distribution of natural gas and oil.