Dutch Treat & Flemish Flavor
08/11/2006 12:00 am EST
Venturing into prosperous territory virtually undiscovered by many individual investors—as well as Wall Street—veteran investor Carl Delfeld brings to the attention of his subscribers two exchange traded funds containing highly prosperous companies trading in all-but-hidden international markets…
“In the Dutch golden age during the 17th century, trading, science, and art dominated the world scene. Still packing a global punch and often overlooked by investors, the Kingdom of the Netherlands is a prosperous and open economy about twice the size of New Jersey, with a population of 16.5 million. The top multinationals based in the Netherlands accounted for revenue of $822 billion in 2005.
“It is easy to tap into in this global corporate vigor through the Netherlands iShare (EWN NYSE) containing a basket of 27 Dutch companies. Global financial services firm ING accounts for 18% of the basket. ING has a dominant position in growing Asian markets such as China, India, and Thailand, a direct bank with 15 million customers worldwide and 50% of its profits come from insurance operations. Since European and American markets are rather mature, its strategy is to continue to diversify geographically and move into higher growth areas like retirement services. ING is a low cost provider resulting in an ROE in 2005 of 24%, though the relatively high debt load is a concern.
“The next four highest weighted companies in this ETF are all top quality: ABN Amro, Phillips Electronics, Unilever, and Aegon. Diversified financials account for 18% of the basket, food, beverage, and tobacco is 13%, banks, 13%, and consumer durables 10%. The Netherlands stock market is undervalued with its AEX index trading at a price earnings ratio of 12 times earnings.
“Belgium, which broke away from the Netherlands in 1830, also presents investors with solid value. Belgium sits at the crossroads of Europe and is home to both NATO and the European Union. The Belgium ETF (EWK NYSE) contains 23 companies, with the insurance and banking behemoth Fortis leading the way with 23% of the basket. The stock is 14% off its 52-week high, and in the first quarter of 2006 its net profits before divestments were up 25%. Financials and banks make up more than 50% the holdings with materials, food, and telecom companies adding an additional 22%.
“The Belgium stock market is undervalued, trading at 1.9 times book with a forward price earnings ratio of 12. It enjoys low interest rates and according to data from EmergingPortfolio.com, global money managers have increased their Belgium weightings in the most recent month.
“Add both Netherlands (EWN) and Belgium (EWK) to your global ETF portfolios to balance more aggressive allocations to emerging market countries.