Great traders and true value investors know that it’s not only the return function that dictat...
Two Southern Hemisphere Stars
07/24/2007 12:00 am EST
Doug Fabian, editor of Successful Investing, says funds investing in two resource-rich countries below the Equator should continue to shine.
One key to collecting short-term profits is to get positioned in a sector that's enjoying its own bull market. And, if you can get your money into a sector that's benefiting from multiple bullish influences, then you've just markedly increased your chances of making those short-term profits a reality. Finally, it's always nice to get into a sector that's just breaking out and vaulting toward new highs, after experiencing a shaking out of its weak-kneed shareholders.
All of the aforementioned short-term investing positives can be found in the iShares MSCI South Africa (AMEX: EZA). So, what are the multiple bullish influences operating on EZA? Well for starters, South Africa is, and has been for some time, one of the best emerging market economies around. The country has a very strong industrial base that is heavily involved in natural resources. In fact, more than 25% of the companies that EZA holds in its portfolio are engaged in the metals and mining industry.
As you probably already know, there has been a tremendous bull market in gold and precious metals during the past few years. The sector's bull market has been fueled by a growing demand for metals and a falling US dollar. Those factors make gold and precious metals more attractive to investors. EZA's holdings also are nearly 10% invested in oil and gas stocks, which comprise another sector that is enjoying its own bull run. So with EZA, we get the benefits of a hot emerging market and a natural resources boom. Those are the kind of dual positives that I like for our short-term money.
The ETF began selling off in May. By June, the fund had fallen below its 50-day moving average. EZA gained some upward momentum midway through June, but fell back below its 50-day average once again. After shaking out the rest of its weak-kneed shareholders, EZA took off again in July and hasn't looked back since. (It closed above $137 Monday—Editor.) This trend is one that I suspect will continue.
[The performance of another fund linked to a Southern Hemisphere star], Aberdeen Australia Equity Fund (AMEX: IAF) is enough to make even the most xenophobic domestic investor abandon such chauvinism.
Aberdeen normally invests at least 80% of the fund's net assets in Australian equity securities that consist of common stock, preferred stock, and convertible stock. The [closed-end] fund also may invest up to 10% of its total assets in unlisted equity securities, and in the debt securities issued by Australian companies and the Australian government.
What I really like here about this "wonder from down under" is the combination of both growth and income. I also like to invest in countries whose economies are in a bull market.
If you are looking for some international market exposures, or if you are looking to get both income and growth from your international allocations, you [should] check out the Aberdeen Australia Equity Fund. (It closed at $18.50 Monday—Editor.)
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