Friday, April 10, 2015

General Electric: A Rare Really Good Day/Bought Back 100 ASEA at $16.04/Bought Roth IRA: 50 EWU at $18.55

Stable Vix Pattern (Bullish):
Links to SeekingAlpha Instablog, Articles and Comments:

South Gent's Instablog | Seeking Alpha

South Gent's Articles | Seeking Alpha

South Gent's Comments | Seeking Alpha


Recent Developments: 

I received the annual dividend from Nordea. The following snapshot shows an ADR custodial fee withheld from the dividend plus a 15% Swedish withholding tax:

Nordea Bank: Bought 100 At $11.56 - Nordea Bank AB ADR (OTCMKTS:NRBAY) | Seeking Alpha

I noted in a recent SA comment that I have been unusually patient with GE, last discussed in a SA article: Bought General Electric In Roth IRA At $23.86 - General Electric Company (NYSE:GE) | Seeking Alpha

My patience was rewarded to some decree by a surge today: GE $28.51 up $2.78 or 10.8%

That is a huge move for a large cap and was caused by this announcement from the company. GE to Create Simpler, More Valuable Industrial Company by Selling Most GE Capital Assets; Potential to Return More Than $90 Billion to Investors Through 2018 in Dividends, Buyback & Synchrony Exchange

So I had a good day with my GE position for a change:

GE TAXABLE ACCOUNT 531+ Shares Average Cost per Share=$20.13

That snapshot does not include the 30 shares owned in an IRA.

As I have discussed in the past, I intend to sell close to 200 shares profitably at some point, bought unfortunately shortly before Lehman's failure, that will reduce my average cost per share to about $15. Those shares have an average cost close to $30.


1. Bought Back 100 ASEA at $16.04 (see Disclaimer): I am trying for the third time to catch this security prior to a significant uptrend. The last two efforts were premature and I exited the position at small profits. The last exit was in July 2014 when I sold 100 shares at $17.14.

Snapshot of Trade: 

Prior Trades:

Item # 3 Sold 100 ASEA at $17.14 (7/26/14 Post)(snapshot of profit=$41.07)-Item # 5 Bought: 100 ASEA at $16.57 (5/31/14 Post);

Item # 4 Sold 100 ASEA at $17.8 (April 2013)(profit snapshot=$55.16)-Bought 100 of the ETF ASEA at $17.09 (1/30/13 Post)

The fund paid an annual dividend of $.418 per share last year and $.593 in 2013.

Security Description: Global X FTSE ASEAN 40 ETF (ASEA) tracks the 40 largest companies located in the ASEAN regions: Indonesia, Philippines, Singapore, Thailand and Malaysia.

Holdings as of 4/6/15:

Sponsor's Webpage: Global X ASEAN 40 ETF - ASEA

Fact Sheet

The valuations are reasonable.

Fund Statistics as of 3/10/15:

Rationale: One reason is simply the underperformance of the ASEAN stock markets over the past three years.

I am also playing the super cycle for the huge increase in EM middle class consumers, but I am using this ETF more as a trading vehicle. I discuss that super cycle throughout this blog (e.g. Item # 3 Bought 50 of the Stock ETF EELV at $27.2 November 2012)

The long term trend is the parabolic increase in middle class consumers throughout this region. Many U.S. and European multinationals will benefit from that trend in addition to local companies.

One firm estimates that the middle class will add 3 billion consumers in the next two decades, coming almost exclusively from the EM nations.  (Reuters and EY publication cited below)

See also:

Ernest and Young Publication: "Middle class growth in emerging markets" (525M in Asia alone are in the middle class, more than the population in the European Union)

"By 2030 two-thirds of global middle class will be in Asia-Pacific" - EY Publication April 2013l

Deloitte Publication:  "Business Trends 2014"

Forbes Article April 2014: "Why Your Business Needs To Break Into Emerging Markets"

Nielsen Publication March 2014: "Meet the New Indonesian Consumer Class of 2020"

Nikeii Asian Review Article May 2014: "Asia's expanding middle class"

This major long term secular trend is discussed in a large number of articles easily found on the Internet. It is not a secret. The problem over the past few years is that this major trend has been masked and dampened by lower than normal growth in several developed countries over the past six years, including the U.S. and several European countries.

Risks: This ETF has the usual set of risks for a foreign stock fund, including country risk.

Currency risk is very important when a fund owns stocks in emerging markets, as highlighted most recently by what happened starting last year when the USD surged against most foreign currencies. The decline in those currencies would then cause a decline in a fund priced in USDs that owns stocks whose prices are denominated in those depreciating currencies. When there is a spike down in EM currencies, there also tends to be capital flight by some owners of EM stocks and bonds, and that will contribute to the decline in the U.S. fund's value as the securities owned by it fall in value.

A Rise in the Chart Line Indicates USD Strength:
USD/IDR Currency Conversion Chart (Indonesia's Rupiah)
USD/MYR Currency Conversion Chart (Malaysia Ringgit)
USD/SGD Currency Conversion Chart (Singapore Dollar)
USD/THB Currency Conversion Chart (Thai Baht)

Future Buys/Sells: I will most likely be using ASEA as a trade given its overlap with other existing positions. I am also trying to catch a wave up, and I have have pulled the plug twice within the past two years when that appeared unlikely to happen within a trading time frame.

2. Bought 50 EWU at $18.55 Roth IRA (see Disclaimer): 

Snapshot of Trade: 

I could not find any prior discussions relating to this ETF in my blog.

Security Description: The iShares MSCI United Kingdom ETF  (EWU) attempts to track an index composed of U.K. equities. According to the sponsor, the fund owned 109 stocks as of 4/7/15. The expense ratio is shown at .49% as of 12/31/14.

I took a snapshot of a few top holdings as of 4/7/15:

Click to Enlarge

Sourced: iShares MSCI United Kingdom ETF | EWU

This fund has a 4 star rating from Morningstar. According to the Morningstar analyst, this fund has 70% of its assets in companies with an economic moat.

Index sector weightings as of 3/31/15:

Click to Enlarge:

Performance Numbers vs. SPY: As of 4/8/15, Morningstar calculates the annualized total  returns at 7.79%, 6.38% and 3.88% over the past 3, 5 and 10 years respectively. The SPY total returns over the same periods are 16.52%, 14.15%, and 8%.

The U.K. stock market has substantially underperformed the S & P 500 over the past 1, 3, 5 and 10 years. EWU was done -3.54 on a total return over the past year through 4/8/15.

Dividends: Dividends are paid semi-annually.

There was an unusually large distribution in June 2014 that results in a 7.59% 12 month yield. I suspect that the June 2014 distribution of about $1.02 per share resulted from one or more index components being acquired prior to that date.

The 2013 distributions totaled $.498862 per share. Assuming some dividend growth, and no acquisitions of index components, a $.55 per share 2015 total seems reasonable. At that assumed rate, the dividend yield would be about 2.67%.

Rationale: My interest in EWU is based in part on the lower valuations of U.K. stocks compared to U.S. stocks and the hit already taken in the Pounds value against the U.S.D.

The GBP/USD was about 1.72 back in July 2014 and 1.49 as of 4/8/15 or a 13.37% decline in the Pound's value against the USD over about 9 months.

The sponsor for the MSCI U.K. index claims that the index's TTM P/E was 16.06 and the forward P/E was 15.09 as of 3/31/15: msci united kingdom index.pdf The world MSCI index had at that time a TTM P/E of 19.28 and a forward P/E of 16.23. Birinyi calculated the TTM P/E of the S & P 500 at 20.55 and the forward P/E at 17.39 as of 4/2/15. P/Es & Yields on Major Indexes - Markets Data Center -

One firm calculated the Shiller P/E for U.K. stocks at 13.1, compared to 28.8 for the U.S. market. Global Stock Market Valuation Ratios

The U.K. stock market index has a higher yield and a lower valuation than U.S. stock indexes. The U.K. stock market has substantially underperformed U.S. stocks over the past decade.

Part of the recent underperformance is the U.K.'s index weightings in energy and material stocks and lower weightings in some better performing sectors.

A 19.44% weighting in the U.K. index originates from BP, Royal Dutch, Rio Tinto, BHP, Glencore and BG Group, all in the top 22 holdings.

The USD priced shares would have underperformed the shares traded in London and priced in British Pounds since June 2014. I drew two comparison charts to highlight that point:

British Petroleum: BP.L Interactive Stock Chart

Rio Tinto: RIO.L Interactive Stock Chart

While I do not anticipate that energy and material stocks will start a bull move anytime soon, I may be wrong and those stocks are certainly beaten up now.

As noted above, a large concentration of companies in this index have economic moats according to Morningstar and are multinationals.

Risks: Some of the risks are highlighted above, including the currency risk and the exposure to energy and material stocks.

For investors who do not want currency risk exposure, there are at least two hedged ETFs that invests in U.K. stocks. The larger of the two ETFs is sponsored by WisdomTree: WisdomTree United Kingdom Hedged Equity Fund (DXPS)

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