Investing in Foreign Utilities via ETFs

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Austrian Mountains Lake

Photo: Austrian Mountain Lake

We invest in utility stocks for the dividends and stable growth. While there are many utilities such as FPL Group (FPL), Exelon (EXE) in the US, many others in countries outside of the USA offer higher growth and dividend yields. Finland based Fortum and Verbund of Austria are two such examples.

One way to invest in foreign utilities is by picking up individual stocks. The disadvantage of this method is that only some of these stocks are listed in the US markets. So a better and easier way to gain exposure to foreign utilities is by investing via ETFs, which cover many of the high quality utility stocks that are beyond the reach of US investors – unless one has the ability to invest directly in overseas markets.

The SPDR S&P International Utilities Sector ETF (IPU) and WisdomTree International Utilities Sector Fund (DBU) are two ETFs that invest only in foreign utilities. The iShares S&P Global Utilities Index Fund (JXI) has both US and foreign utilities but has high allocation to overseas utilities.

Foreign Utility ETFs Overview:

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1.iShares S&P Global Utilities Index Fund (JXI)

JXI is the largest utility sector ETF with assets of $231M and a dividend yield of 2.43%. The fund has 69 stocks with E.ON AG of Germany as the largest holding in the portfolio. As per the fund fact sheet dated June 30,2008 US stocks accounted for 36% of the portfolio. Germany is second with two (E.ON and RWE) of the largest utilities included. E.ON is the largest utility in Germany generating one-third of the electricity used. The average annual dividend growth in the past five years has been 18.5%. RWE AG is the second largest German utility whose five year average annual dividend growth is 23.42%.

Other top stocks in the portfolio are GDF Suez(France), Iberdrola (Spain), Enel Spa(Italy),National Grid plc(UK). Exelon Corp, FPL Group and Dominion Resources are three US utilities in the top 10 holdings. Year-To-Date JXI is down 11.5%. Utility companies from Chile,Brazil,Portugal,Japan,Finland,etc. are also represented.

2.WisdomTree International Utilities Sector Fund (DBU)

The dividend yield of DBU is higher at 3.59% with the total assets of the fund being $56.0M. Though its expense ratio is slightly higher than JXI, DBU is a truly international utility sector fund since it excludes US stocks and allocates the majority of the assets to European utility stocks (about 82%), which are traditionally great performers in terms of dividend yields and capital appreciation.

DBU has 77 stocks in the portfolio GDF Suez of France accounting for 10.15%, the largest holding. Similar to JXI it has E.ON, RWE, Iberdrola, National Grid, etc. as the top holdings. Utilities from Australia,New Zealand, Austria, Norway,Hong Kong form part of the portfolio.

3.SPDR S&P International Utilities Sector ETF (IPU)

State Street Global Advisors launched this fund in July of this year with total assets of just about $5M.

Like JXI, E.ON AG is the largest holding in the fund. Germany is the top represented country but IPU gives a higher weightage for Japan unlike the other two funds above. The expense ratio is lower than the WisdomTree ETF but the asset base has not grown to the levels of JXI and DBU.

Disclosure: Long FPL,VE

Three Cheap Closed-End Funds

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Closed-End funds whose market price is trading at a discount to their NAV (Net Asset Value) are considered to be cheap. Here are three such funds which offer country specific exposure at a decent price.

1.Fund Name: Swiss Helvetia Fund
Ticker: SWZ
Total Assets: $594M
Discount to NAV : -17.61%

2.Fund Name: New Germany Fund
Ticker: GF
Total Assets: $378M
Discount to NAV : -17.07%

3.Fund Name: Mexico Fund
Ticker: MXF
Total Assets: $762M
Discount to NAV : -12.21%

EcoPetrol SA – A Newly Listed Colombian Stock in NYSE

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EcoPetrol SA (EC) , the only integrated oil and natural gas company in Colombia, listed its stock today on the New York Stock Exchange as an American Depository Shares (ADS). Each ADS share represents 20 common shares.In November 2007, the company had a successful IPO in the Colombian stock market raising about US $10B. The initial IPO price of the stock on Nov 26,2007 was Colombian Pesos 1.4000. This Friday it closed at 2.580 Colombian Pesos (CP). Thats a growth of about 84%. So EcoPetrol common has had a tremendous run down in Colombia. As the demand for oil grows and the price of crude goes up and down in this tough market, EcoPetrol is definitely worth watching for a US investor.

The following are some facts about EcoPetrol:

1.EC is already up $5 since it started trading from a low of $22.40. Now it goes for $27.35

2. Revenue was $15B for 12 months ending June 30,2008.

3. The comapny’s logo is an Iguana.

4. Net income in 2007 was $2.57 B compared with $1.68B in 2006.

5. Foreign sales accounted for 28% of revenue in 2007.

For more info visit EcoPetrol’s IR site.

Top Foreign Chemical Stocks

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Chemicals

One of the defensive sectors that investors tend to overlook during volatile market conditions is the chemical sector which has many high quality companies with stable long-term growth.

In modern times chemicals are an active ingredient in most of the products we use. They are used for enhancing the texture in cereals, keeping the fragrance in dish washing liquids, airfreshners, adhesives for packaging, making of drugs, paints, etc. So similar to diversifying one’s portfolio with consumer stables like food stocks, one can also pick up some of the top chemical stocks.

To review some of the top chemical companies of the world that trade in the US, I used the “ICIS Top 100 Chemical Companies 2008” list released by ICIS Business on September 15,2008. This list contains all the chemical firms with annual sales of more than $2.5 B. A A total of fourteen foreign stocks are in the list.Some of them like Bayer trade in the OTC market while the rest trade on the New York Stock Exchange.

1. BASF (BASFY) is the world’s largest chemical company with annual sales of $85.0B in 2007. It has a 6.07% yield. The yield has grown at 18.2% for the past 5 years and revenue has increased by just over 10.0%.

On September 15, the day Lehman Brothers died this German chemical giant announced that it will acquire the Swiss specialty chemical maker Ciba for $2.9B in cash.

2. Bayer (BAYRY), another German company, ranked number twelve in the Top 100 list. Sales increased 11.8%(in Euros) from 2006 to 2007. The current yield is 2.64%. Bayer has significant presence in the health care industry with popular brands like Aleve,Alka-Stelzer,Cipro,etc.

3. The Dutch company Akzo Nobel (AKZOY) trades in the OTC market with ticker AKZOY. The company manufactures specialty chemicals, paints and coatings. Last year AKZOY acquired famous British paint-maker Imperial Chemical Industries (ICI) plc and this year sold part of ICI to Henkel AG of Germany. The stock has a yield of 7.48% and the revenue has been almost flat for the past 5 years. The ICI acquisition should help Akzo Nobel expand its market share in the paint segment. In 2007, the company had sales of $21.0B.

4. Yara International (YARIY) of Norway is an agricultural chemical manufacturer. As the demand for fertilizers increased exponentially last year the stock took off. After reaching a peak of $90 the stock currently goes for $37.

5. Air Liquide (AIQUY) is a world leader in industrial and medical gases with operation sin 75 countries. Sales in 2007 was $17B which is 7.8% higher than 2006.The stock has a yield of 2.76%. France based, Air Liquide is a constituent of the DJ Euro Stoxx 50 Index which is made up of the largest European countries (excluding UK).

6. Braskem(BAK) is an integrated petrochemical and thermoplastics producer in Brazil.Revenue has grown 16% in the past 5 years.The current yield is 6.36% and the PE is 8.57. Braskem has lower EPS and Revenue growth compared to the industry.

7. The Swiss agricultural chemical maker is Syngenta (SYT). The stock a yield of 1.97% and the PE is 15.80. Syngenta has increased dividends by 30.5 years in the past 5 years. Sales is up 20% for the fist half of 2008 compares to the same period last year.

8.Solvay SA (SOLVY), is a Belgium based firm operating in the pharmaceuticals,chemicals and plastics sectors. Total sales in 2007 was $10.2 B. Earnings growth in past 5 years was 11%.Current yield is 4.59%.

9.Arkema (ARKAY) is a spinoff from the French oil giant TotalFina. It has a 2.9% yield.

10. The specialty chemicals company Rhodia (RHAYY) is based in France. The dividend yield is 2.29%. This yield is in-line with the industry average.

11. Nova Chemicals Corp.(NCX) is a Canadian chemical manufacturer with a sales of $6.7B in 2007. The P/E ratio is 7.31. While the revenue has grown 17% annually for the past 5 years the dividend growth rate has been flat.

12. South Africa based Sasol (SSL) is a major oil and gas company with substantial interests in chemicals. The stock is down only 14.10% in the past 52 weeks. Sasol is expanding operations in China and Iran besides many African countries. The yield is 5.38% and the S&P rating on the stock is 4-stars.

13. Potash Corporation of Saskatchewan Inc. (POT) of Canada is a fertilizer manufacturer. POT had a great run last year when the demand for fertilizers went up. The stock is expensive with a P/E ratio of 25.65. The revenue and dividend has increased about 18% and 16% annually over the past 5 years. After reaching $241.62 in June this year today it closed at $163.50.

14. Like Potash Corp., Agrium (AGU) is another Canadian fertilizer maker with operations in the US, Argentina and Chile. The current yield is 0.15% and the P/E ratio is 10.84.

As per the ICIS Chemical Business Top 100 report, in 2007 chemical companies continued to grow strongly. In the first half of 2008 the stocks have held up well. But the second half is proving to be tougher due to the sharp economic downturn in the US economy. The M&A activity is worth watching in this sector as some of the major players try to snap up companies in the specialty chemical sector since they have higher profit margins. In July Dow Chemical paid a 74% premium to acquire Rohm and Hass, a specialty chemical maker.

An investor looking to add some exposure to foreign chemical stocks may evaluate some of the stocks mentioned above since these companies are the largest in the world on the basis of total sales.

The Most Traded Asian ADR Stocks

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Stock markets worldwide are in free-fall mode past few days. Latin America emerging markets have a fallen heavily and so is the Asian markets. Brazil is down over 40% from its recent peak due to the crash in commodity prices. Asian markets like China, India, Vietnam,Singapore have been crushed as well. Shanghai is down over 50% year to date. The Olympics hype did not help the Chinese markets. India has been rolling over for a few months now after reaching the peak with no end in sight in the near term.

Many Chinese and Indian companies are listed as ADRs in the US markets. It helps to see how some of these Asian ADRs are performing in the current situation. The following table shows the most traded Asian ADRs on a daily basis and the year to date change:

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