Monday, February 22, 2010

Bought 100 of the ETF EWH at 15.15/ BOUGHT 100 ETF EWS AT $10.9/Added 100 of the CEF IGI at 19.78

1. Bought 100 of the ETFs EWH at $15.15 and EWS at 10.9 Today (Asian Strategy) (see disclaimer): The buy of EWH was in one of my satellite taxable accounts with a financial institution, which used to be entirely devoted to bank CDs and a savings account. I responded to a promotion for an online brokerage account after several of my CDs started to mature and the reinvestment rates were not close to being even slightly tempting.

EWH is an an ETF for stocks listed on the Hong Kong exchange. Admittedly, it would have been better to to buy EWH when I bought EWC, the ETF for Canadian stocks in March 2009: Buy of EWC & BAM/ At that time EWH was selling at around $9: iShares Trust (Barclays Global ETF Chart

This purchase is just another way to play my investment thesis for the next long term secular bull market, where I believe Asia will be the main driver. No one knows for sure whether the rally off the March 2009 is the start of a new long term secular bull market or just another cyclical bull in a long term secular bear market. My personal belief is the current worldwide rally in stocks is a short duration cyclical bull move within the context of a long term secular bear market which started in 1997. By short duration, I am referring to a period of 1 to 2 years reminiscent of the counter-trend cyclical bull move off the October 1974 lows. I realize that any prediction about the future can be wrong, or even way-off. Since I also believe at the present time that the catastrophic phase of the long term bear market is behind us, and we are relatively close to the end of that cycle, I am willing to be more adventurous than in 1976, when my overall response was to mostly keep investing in CDs until the summer of 1982 when I formed a judgment that the most important economic act of the era was going to be successful. I do not mean Reagan's tax cut, but the efforts of the Federal Reserve to eliminate serious inflation. I would not mind having a 14% 3 month CD rate now, and I did receive some rates like that back then.

Back to EWH, when picking an ETF with exposure to China, I shy away from FXI which has a lot of exposure to banks. EWH has a lot of exposure to financials, but a lot of those holdings are properly characterized as non-bank financials such as real estate companies. iShares MSCI Hong Kong Index Fund (EWH): Holdings The expense ratio for EWH is .55%. iShares MSCI Hong Kong Index Fund (EWH) I can trade stocks on the Hong Kong exchange and have some familiarity with a few of the companies. Also, several of them are available on the pink sheet exchange, and I follow several of them including Swire Pacific Ltd.( SWRAY), Hang Seng Bank Ltd. (HSNGY) and Sun Hung Kai Properties Ltd. (SUHJY).

The China ETFs were the subject of a recent article at IndexUniverse. (I read an interview while visiting that site today with Rob Arnott who believes treasuries may continue to work over the short term, since he views that inflation numbers will be benign in the months to come, primarily due to the 40% weight in CPI to the fictitious owner's equivalent rent and rent)

I also added today, with a limit order filled at $10.9 near the close, 100 shares of the ETF EWS which contains stocks from Singapore. This ETF has an expense ratio of .55%: iShares MSCI Singapore Index Fund (EWS) As noted in this article from BusinessWeek, Singapore has strong economic links in the Asia-Pacific region. Other holdings in the Asia Strategy include the CEF IAE (150 shares), held in both the taxable and retirement accounts and a recently purchased mutual fund from Matthews, the fund complex that focuses on the Asian countries. {see e.g. /Bought 50 of the CEF IAE; Bought Matthews Asian Growth and Income (MACSX)} I also own shares in Matthews India (MINDX) and Matthews Pacific Tiger (MAPTX). This is not an area of the world where I will do much in the way of individual stock purchases, with minor exceptions possible for companies located in Australia, Hong Kong, India and New Zealand. I will be increasing my exposure to this area of the world during 2010.

I would not add to the CEF IAE now since it is selling at a premium to its NAV. ING Asia Pacific High Dividend Equity Income Fund - Overview I will always, however, considering selling a CEF bought at a discount to its net asset value when it starts to sell at a premium. That has been part of my closed end fund strategy since I bought my first one, ADX, back in 1984.

2. Added 100 of the CEF IGI at $19.78 (see Disclaimer): This is a term CEF bond fund, which simply means that it has an expiration date. One of the major problems with bond funds is that they generally lack a maturity date. Sure, the bonds in the fund have maturity dates, but the investor does not own them. If bonds enter a long term bear market, where prices fall and yields rise, I would expect most bond funds to lose value, some more than others. Depending on the duration and the severity of the rise, I would expect many of them to lose more in value than they pay in dividends, potentially by a substantial amount with a significant rise in rates and for a fund holding long bonds. This would also be potentially significant given the low rates now. It would not take much of a loss in share value to wipe out an annual interest rate. Taking those factors into account, I want to at least have the option of holding a security until a certain date, where I will receive my original principal back, as would be the case with an individual bond when the firm is capable of paying par value at maturity, or all or most of my principal in the case of a term bond fund. There is no promise to pay back what I have just paid for IGI, but there is at least the assurance that the manager of the firm knows that it will be liquidated in 2024 and will hopefully manage it with that term date in mind.

I recently bought IGI in the Roth and I discussed it at that time: Bought 100 CEF IGI at $19.89 The purchase today was in the main taxable account, an Old Geezer kind of buy, to add to the generation of cash flow in that account. IGI pays dividends monthly. As of the close last Friday, it had a NAV of $20.32 and was selling at a discount to NAV of 2.26%. Closed-End Funds by Category - Markets Data Center - The fund closed Monday with a NAV of 20.33 and was selling at the close of trading today at a 2.26% discount to its NAV.

This is the link to the last annual report filed with the SEC: The fund does not use leverage. The fund's objective is to liquidate in December 2024 and to hold at least 80% investment grade bonds.

3. Filibuster Rule in the Senate: I would agree with Senator Bayh that the Senate needs to change its filibuster rule which allows a determined and obstructionist minority to block even routine legislation. Bayh proposes that the number of votes needed for closing debate be reduced from the current 60 to 55. This is not likely to happen, however, because it would require a two-thirds vote in favor of the amendment. Filibuster

Today, the republicans in the Senate tried to filibuster a modest 13 billion dollar jobs bill and almost succeeded. By using the filibuster rules the minority party prevents legislation from ever coming to a final vote, and 60 senators have to vote on a cloture motion to stop the filibuster. The jobs bill would give employers a 1 thousand dollar tax credit for each new hire who stays on the job for a year, and allows employers to avoid paying social security taxes on near hires who have been unemployed for at least 60 days. Senate Thirty republican senators voted against cloture. Since the GOP is a group think kind of organization, it is rare to have a defection from the party line. If three GOP senators had not defected to join the democrats in voting for cloture, this very modest jobs bill would not have made it to a final vote.

No comments:

Post a Comment