European Utilities Vs. US Utilities

Posted by on

Goal: Compare European Utilities Index and US Utilities and determine which one is better for long-term investment.

Solution: Perform a comparison using utility indices specifically the iShares Dow Jones U.S. Utilities Sector Index Fund (IDU) ETF for US and Lyxor ETF DJ Stoxx 600 Utilities Fund for Europe. IDU is a proxy for U.S. Utilities Index and the Lyxor ETF is a proxy European Utilities. IDU is in US$ while the Lyxor Fund is in Euros.

Analysis:
IDU has 76 US stocks representing Electricity and Gas,Water & Multi-Utilities.Exelon Corp., an electricity utility is the top holding in the portfolio(about 10%). The fund was started in June 2000 and has a total net assets of $866+ Million.The dividend yield is 2.69% and the expense ratio is 0.48%

The Lyxor fund has 32 stocks with an asset base of about 63M EUR and the the expense ratio is 0.30%.Multi-utilities represent about 46%,Electricity at 37%,Gas at about 7% and Water at about 6% in the fund.The Reuters ticker for this fund in the Paris Exchange is LYXUTI.PA. The top 3 countries in the fund are Germany(27%), France(22%) and UK(20%).

The 5 year performance of the two funds are listed in the table below:

[TABLE=54]

We see that the European Utilities performance is better than their US counterparts in each year except in 2008 to-date. Excluding this year, the average annual return for the past 4 years for US utilities is 18.77% whereas the same for the European utilities is 26.01%. That’s a difference of over 7%.This is a big difference and kinda surprising since utilities in the US pay dividends quarterly and there is a lot more competition than Europe where companies pay dividends semi-annually and companies are regulated heavily.

The DJ Stoxx 600 Utilities index returns are as follows (in EUR):
YTD: -9.14%
3 Years: 64.78%
5 Years: 148.40%

Note: All data as of June 1, 2008

Sample European Utility Returns:
Enel:
From 01/02/2004 to 05/30/2008 Enel returned an annual yield of 14.81%.
This includes all splits and dividends reinvested.
Source: Enel Corp Site

EON:
A 1000 EUR invested in 01/02/2004 will be worth EUR 2,628.49 on 05/30/2008.That’s a growth of 162.85%.This includes all splits and dividends reinvested.
Source: EON Corp Site

Conclusion:
This simple analysis shows that European utilities are a better investment than US utilities.Of course the analysis has issues such as not taking into account currency exchanges and other factors.However any investor looking for above average returns with the utility sector might want to invest some in European utility stocks.

Components of DJ Stoxx 600 Utilities available as ADRs in the US are
as follows:

[TABLE=55]

Related Links:
1. Lyxor Utilities ETF Factsheet
2. iShares IDU page
3. DJ Stoxx 600 Utilities Index
4. ETF Connect – IDU Page
5. DJ Stoxx 600 Euro Utilities Components

Taiwan: Time to take a second look ?

Posted by on

One of the best and easiest ways to invest in Taiwan is with an ETF since it gives an investor exposure to a wide selection of Taiwanese stocks.Investing in individual stocks such as TSM,UMC is extremely risky.

Taiwan’s major industry is electronics specifically contract manufacturing of electronic parts for other companies.Computer parts such as semi-conductor chips, keyboards,monitors,speakers etc. are made by hundreds of contract manufacturers there.So whether one buys a computer from Dell,Sony,IBM or any other company, it will have parts made in Taiwan. So in a nutshell a bet on Taiwan is an invest in the hi-tech sector.It is like investing in a bunch of silicon valley firms except that the Taiwanese ones are not startups or dot-cons.These are established long-term players with world-wide reputation for quality and efficiency.

The country has a population of 22 Million.China has the largest Foreign Direct Investment(FDI) in Taiwan. US is the next global trade partner.Most of the firms in Taiwan make products locally and export them globally.

The only country specific ETF available for Taiwan is the MSCI Taiwan Index Fund (EWT).

EWT Details (As of June 1st, 2008):
Country: Taiwan
Fund Type: ETF
Ticker: EWT
Price per share: $16.21
Expense Ratio: 0.68%
Inception Date: June,2000
Dividend: Paid Annually, Has increased each of the past 5 years.

Total Net Assets: $4.0B+
Number of stocks held: 126 (As of April 30,2008)
Portfolio Allocation: 54.68% in IT

The largest stock held at 11%+ is Taiwan Semiconductor Manufacturing – TSM. Some other popular companies in portfolio include Acer(Computers), D-Link(Routers) and Evergreen Marine(Shipping,Marine Svcs).

Fund Performance: Total Returns (Annualized)
1 Yr – 22.21 %
3 Yr – 15.60 %
5 Yr – 18.87 %

5 yr chart:

The above chart clearly shows how EWT slided to new lows when the tech boom melted in 2000.

Conclusion:

EWT gives good exposure to the hi-tech sector.Any rebound in that sector will be reflected in this ETF.Some folks think that the hi-tech stocks are holding well and growing in this volatile period since they are not affected by the credit crisis and have hoards of cash to invest in R&D.

Banco Itau Holding Financeira S.A. Stock Split 2008

Posted by on

Banco Itau (ITU) is to split its stock June 9,2008 on a ratio of 5:4.

Stock Info:
Ticker: ITU
Country: Brazil
Sector: Banking
Current Share Price: $30.71 (All data as of May 30th)
Dividend Yield : 1.98%
Dividend Paid : Monthly

$10K invested 5 years ago: Now worth $95,307 (based on S&P Stock Report)

Split Details:
Record Date: June 4, 2008
Payable Date: June 9, 2008
Split Ex-Date: June 10, 2008

Multi Year ITU Performance Chart:

ITU Stock Chart

As seen from the chart above, the previous split was last year in October at a ratio of 2:1. Post-split, the stock was at 27.64.Now it is at $30.71. Not a significant increase in price since split.So it seems like the split is done now to offer more liquidity as the demand for all Brazilian stocks have gone up dramtically in recent months. This is due to the robust growth of the Brazilian economy.Folks looking for good returns are willing to take more risk of investing in emerging economies like Brazil, China, India, etc.

In the latest edition of his Blue Chip Growth Letter (a newsletter), Louis Navellier has said that Brazilian bank stocks are to go “ballistic” due to the heavy demand from pension funds and Arab investors.

From corporate site:
“Louis Navellier has one of the most exceptional long-term track records of any financial newsletter editor in America.According to The Hulbert Financial Digest, in the nine years from the beginning of 1998 to the end of 2006, the Blue Chip Growth Buy List has returned over 188.3%, which is nearly three times better than the Standard & Poor’s 500.”

ITU started this year from $25.86 and now has reached 30.71. Thats a growth of about 19%. Also trading volume has increased considerably since Jan 2007.


Eurovision 2008: Sirusho

Posted by on

In this year’s Eurovision song contest, Sirusho represented her country Armenia with the song “Qele Qele“. It is a great song. You can watch the video by clicking on the YouTube link below:

Dima Bilan who represented Russia won the Eurovision 2008 contest.
You can watch the full 3 hour+ finals by clicking on the Eurovision.TV site. (Note: You have to download and install the Octoshape streaming plugin)