Filipinos in Austria and ETF Feel Effects of Inflation

Rising inflation in Austria could help eat the way to a rise in the related exchange traded fund (ETF).

Filipino workers there are getting creative on ways to satisfy their daily dietary needs. For example, instead of eating rice, the price of which has shot up 30% lately, they're looking at potatoes and salad. The products are cheaper, but still nutrient-rich.

Consumer prices overall have inflated by 0.8% during April alone. They're up 3.5% for the year. 

Among the hardest-hit areas is that of food products, which are a basic need, reports Hector Pascua for ABS-CBN News. Rising fuel prices are to blame for the rise in food prices, similar to what we're seeing in the United States.

Is the iShares MSCI Austria Index (EWO) feeling the effects of a 7.8% rise in food prices for April, and the transportation fares rising 7.3%, all driven by the 26% increase in fuel prices? Consumer services only make up 0.96% of the ETF. Financials are 34.7% of the fund, however, and energy is 14.4%, so any increase may be reflected soon.

Year-to-date, the fund is up 1.8%. In the last month, it's up 7.9%.

Germany, Austria ETFs Could Get a Lift From Stock Ownership Plans

In Europe, could more stocks given to the workers help compensate for wages that have stagnated in much of Europe, boosting exchange traded funds (ETFs) and the stock market in general?

Voestalpine, a metal working company in Austria that makes up 4.8% of iShares MSCI Austria (EWO), has set the example, as factory visits have turned into financial briefings, and employees have now become shareholders.

Many Europeans lack faith in free markets such as those in the United States or Great Britain, and they do not rely on them to address the problems with of capitalism with more free market solutions, explains Carter Dougherty for The New York Times.

More stock in the hands of the workers could help compensate for wages that have stalled in much of Europe, even as the stock markets rally. In Ireland, the United States and the United Kingdom, the ratio of employee shareholders is 20-30%, compared to 6-7% in both Austria and Germany. German and Austrian labor contracts are more focused on wages.

In Germany, unions have been resisting the idea of employee stock ownership - they don't like  that wage increases would be substituted with stocks. German unions have instead favored profit-sharing. Automaker Volkswagen, which is 3.2% of iShares MSCI Germany (EWG), gave its employees a bonus of 3,700 euros that was linked to its operating earnings. To make stock ownership catch on, Germany's two main political parties are considering tax incentives.

Foreign Worker Program Could Lift Austrian Economy and Maybe Its ETF

An Austrian program that brings unpaid, experienced foreign workers to the country could spur its economy and, in turn, its exchange traded fund (ETF).

The program, called Amadeus, brings bright, young things to work in Austria's top businesses each year, and in place of pay is prestige, gratitude and cultural experience. David Hill for Weiner Zietung reports that the program began as a class project and soon evolved into a business.

It certainly couldn't hurt the iShares MSCI Austria Index (EWO) to have these eager young minds in the country, working hard and learning new things.

Austria has been part of the European Union since 1999, and is a prosperous, Democratic country. The country has plenty of natural resources such as coal, oil, timber, iron ore, copper and zinc. The majority of Austria's population is of working age (16-64), which could pay off in the long run.

The fund needs to mount a turnaround, though: year-to-date, it's down 10.7% and it's 8.6% below its trend line. Can it pull through?

You Can't Always Judge an ETF By Its Name

In December, Barclays added another international exchange traded fund (ETF) to its lineup: the iShares MSCI Kokusai Index Fund (TOK).

 TOK covers 1,203 holdings in 22 developed markets, minus Japan, with the United States taking the most holdings at 50%. The second-largest constituent is the United Kingdom, at 12%. There are also holdings in Austria, Belgium, Ireland, Italy, New Zealand, Spain, Sweden and Switzerland.

The largest holding is ExxonMobil Corp. (XOM) at 2%. It's most heavily concentrated in financials, at 24.7%. When the fund launched, Matt Hougan for Index Universe wondered if it wasn't a strange product to launch on a U.S. exchange since, after all, most U.S. investors are already invested in this market and would instead want exposure to Japan in their portfolios.

But the most intriguing thing about the fund, we think, is its name: "kokusai" is the Japanese word for "international." It's an interesting choice of word for a fund with no holdings in Japan.

Country-Specific ETFs Tell Two Stories

If they're smartly played, country-specific exchange traded funds (ETFs) can deliver rewards.

Country-specific ETFs, such as iShares Austria (EWO), give investors a great way to take advantage of growth in regions such as Eastern Europe. Two years ago, we made a small bet on EWO because we liked the exposure to Austria as well as the fast-growing emerging markets elsewhere in the area. We knew this ETF was a gamble because of its highly concentrated two-dozen stocks, making it susceptible to price swings. We watched the ETF jump 28% before selling it in 2006.

After walking through the streets of cities such as Prague with my family last Summer, I took notice of bank branches filled with customers and the numerous ads for cell phones, many of which were offerings from companies in EWO's portfolio.

Advisors are using these country-specific ETFs in a variety of ways, reports Rob Wherry for SmartMoney, from a substitute for individual stock picking to getting boosted returns away from a generic, broad-based ETF. Such strategies can hold the hopes of big returns but they are also carrying different levels of risk, so be sure to do your research.

Eastern Europe ETF a Dark Horse in Emerging Markets Sector

When talk turns to the "emerging markets" exchange traded funds (ETFs), it often centers around a few economies in particular: Latin America, India and China. In the fourth quarter of 2007, however, there was one region that flourished: Eastern Europe.

Gary Gordon of ETF Expert says that the SPDR S&P Emerging Europe (GUR) ended the year just a few points off its 52-week high. Compare that with the performance of the iShares S&P Latin America 40 Index (ILF) and the iShares MSCI Pacific ex-Japan (EPP), both of which didn't perform as nicely as they had in the previous three quarters.

So far this year, GUR is showing strong demand, thanks in part to a heavy weighting in energy. The fund is 50% allocated in that sector, and of that, 60% allocated in Russia (one of the BRICs, you'll recall).

Is GUR truly an emerging market fund, though? The fund, overall, is 36.3% allocated in Russia, 13.1% in Poland, 12.1% in Turkey and 6.2% in Hungary. But before you nod your head "yes," consider that 27.1% of the fund is in the United Kingdom -- decidedly not an emerging market. One can't help but wonder if the fund is getting a little bit of its boost from the UK's comparatively strong economy.

Another way to access Eastern Europe is through the iShares MSCI Austria Index (EWO). The fund is heavily weighted in the struggling financial sector, though, so keep that in mind as you consider the credit crisis that is not only affecting things on U.S. soil, but also abroad.

Austria ETF a Gateway to Eastern Europe

Austria and its exchange traded fund (ETF) have benefited from the opening up of western and eastern Europe, more so than any other European Union member. iShares MSCI Austria (EWO) is the best play on this European country that is serving as a support for eastern European countries. Austria's eastern and southern neighbors are entering the EU, putting this small country back in the center of the map, reports Carl Delfeld for ETFXRAY.

Austria's trade with central and eastern Europe has jumped over the past 15 years, helping to lower the trade deficit. Direct investment from Austria into central and eastern Europe went from 0 in the 1990's to $28 billion in 2004. This equals 8% of the country's GDP. Ten years ago investment was focused on manufacturing, and now the majority goes to financial intermediation, property and services.

EWO is down 1.3% year-to-date and financials make up 42% of this ETF. While EWO is below its 200-day moving average, it may be one worth watching if you are interested in eastern Europe.

5 ETFs with Winning Streaks

Now that the five-year bull market is showing signs of distress, investors might be curious about some exchange traded funds (ETFs) that are on a winning streak. Richard Widows for TheStreet.com reports that none of the 19 ETFs with a strong track history will be able to boast a 10-year winning streak at the end of the year. The same is true for eight-year streaks for the 33 ETFs around at the end of 1999.

A search for the ETFs with positive returns over the last five years in addition to the first three calender quarters of 2007 were found in TheStreet.com Ratings database, they include:

• iShares MSCI South Korea Index Fund (EWY) - EWY has produced positive results for its holders every complete calendar year since its inception in May of 2000. Currently, it's up 41.6% year-to-date.
• iShares MSCI Austria Index Fund (EWO) - EWO has produced market gains every calendar year beginning with 2002. Currently, it's up 6.8% year-to-date.

The last three of the five ETFs with winning streaks produced positive consecutive calender year results since 2002 but have fallen into the red as of January this year. All invest in real estate:

• iShares Dow Jones U.S. Real Estate ETF (IYR) - IYR has been up every year beginning with 2001, but year-to-date it's down 7.9%.
• iShares Cohen and Steers Realty Major ETD (ICF) - ICF has has had consecutive positive years starting in 2002, but year-to-date it's down 5.9%.
• Dow Jones Wilshire REIT ETF (RWR) - RWR has been up every calendar year since 2002, but year-to-date it's down 6.2%.

Eastern European Ties Benefit Austria ETF

While Austria's exchange traded fund (ETF) generally has been a strong performer, it could be affected by a lower-than-expected increase in its gross domestic product (GDP). Austria's GDP growth rate is likely to slow down to 2.4% in 2008 after reaching 3.4% in 2007, according to forecasts released by the Austrian Institute for Economic Research (WIFO). Vienna still is the hub for Eastern European commerce and growth in this region is expected to expand faster than most regions.

Peter Klopf for Financial News Limited reports that although Austria's economy is benefiting from "excellent" growth in its export and investment levels in 2007, the worsening global economic conditions and current international financial crisis could keep this growth from developing into a longer-term economic boom, according to WIFO.

However, Austria and its exchange traded fund (ETF) benefit from the country's strong commercial relationships with Eastern Europe. Austria has been getting a boost from its government's economic reform program, which is aimed at streamlining the government and creating a more competitive business environment. If growth remains a priority, Austria could become more attractive to investors. The Austria ETF, iShares MSCI Austria Index (EWO), is up 5.8% year-to-date with about $471 million in assets.

Video of Tom Lydon Discussing Single-Country ETFs

Tom Lydon appeared on CNBC's weekly "ETF Tracker" segment of Closing Bell yesterday and discussed German, Malaysian, and Austrian single-country ETFs with Melissa Francis. Video of Tom's segment appears below:

Austria's Forecasted Growth Increase Could Boost Its ETF

The Austrian National Bank recently raised its prediction for real gross domestic product (GDP) growth by 0.2 percentage points, which could influence the performance of its exchange traded fund (ETF), iShares MSCI Austria Index (EWO). The new forecast is that Austria's GDP will grow 3.4%, and the country expects growth in Austrian exports and the economy to continue in the second half of the year, reports Fiona Flanagan for Thomson Financial News. Currently, EWO is up 2.3% year-to-date.

Austria has a well-developed market economy and high standard of living that is closely connected to other European Union (EU) economies, especially Germany's. The Austrian economy also benefits greatly from strong commercial relations, especially in the banking and insurance sectors. Its economy features a large service sector, a sound industrial sector and a small, but highly developed agricultural sector, according to the CIA World Factbook.

Declining European ETFs

Some country-based exchange traded funds (ETFs) in Europe seem to be slipping lately. iShares MSCI Italy Index (EWI), iShares MSCI Belgium Index (EWK) and iShares MSCI Austria Index (EWO) look as if they're breaking down, says Tate Dwinnell for Self Investors. Year-to-date, EWI is down 1.7%, EWK is down 3.5% and EWO is down 2.1%.

Reasons for the declines vary by country. Unstable politics and slow economic growth, according to economic data from The Economist, are a few factors in Italy's declining performance. In Belgium's case, financials and banks make up more than 50% of its ETF, says Carl Delfeld for ETF XRAY. Considering those areas are the hardest hit by subprime and credit problems, it's no wonder EWK has been pulled down with it. Austria has been hampered with weak domestic consumption that has kept its growth rate below 3%, according to the CIA World Factbook.

Tap Into Eastern Europe Via ETFs

Eastern European stocks are forecasted to outperform those of Western Europe, and exchange traded funds (ETFs) that focus on these countries could benefit. The performance gap between developed Europe and it's Eastern counterparts could widen during the next year. Poland is seeing more robust economic activity with an expected GDP rate of 6% (up from 5.8% in 2006), while Russia's economy is growing at a rate of 7% a year.  Opportunity in this region is coming through energy, banking and mobile-phone sectors. Murray Coleman for The Wall Street Journal reports higher employment is boosting disposable income and consumer spending. There is also a construction boom with government financed infrastructure.  A revitalized housing market is showing mortgage activity and consumer lending.

While there is not a specific Eastern European ETF, there are ways to tap into this market.  Austria has become the hub for Eastern European commerce.  iShares MSCI Austria Index(EWO)  up 11% year to date. Market Vectors Russia (RSX) was just recently launched, but gives investors another opportunity to invest in the region.

ETFs Rebound in First Quarter

When you think of spring, one may conjure images of flowers growing, but what about the growth of your exchange traded funds (ETFs)?  As companies are reporting first quarter earnings, Rudy Martin of TheStreet.com reviews ETFs for the first quarter. 

Although there was a bit of a scare coming from China mid-quarter, Asian markets rebounded nicely. iShares MSCI Singapore (EWS) was up 10.5% for the quarter, with a healthy economy.  iShares MSCI Malaysia (EWM) returned 19% for the first three months of 2007, as the country works toward becoming an economic hub.  iShares MSCI Australia (EWA) saw 10.4% growth with banking, real estate, metals and mining boosting the economy.

In Europe, iShares MSCI Austria (EWO) grew 5.3% as it continues to be a hub for Eastern European commerce.  iShares MSCI Spain (EWP) rose 5% on its drive for growth, with the housing/building industry booming and Spaniards forgoing siesta to work harder and longer.

ETFs Can Help the Tax Bill

Tax season is under way and for those investors with investments in exchange traded funds (ETFs), capital gains tax is one less worry. While it is too late for those who delayed on ETF investments, there is always a new year.  Although most ETFs are touted for their tax efficiency, it's important to pay attention to each one.  Many of the newer ETFs are more specialized and not all ETFs are the same.  Marc Hogan of BusinessWeek looks at five funds that are top-rated for consistent returns and tax efficiency and could help diversify a portfolio.

1. iShares MSCI Austria Index (EWO) 5-year return of 36% and over that time lost 0.4% to tax costs;
2. iShares Russell 2000 Value Index (IWN) 5-year return of 13% and over that time lost 0.5% to tax costs;
3. Vanguard Small Cap Value Index (VBR) 3-year return of 14% and over that time lost 0.5% to tax costs;
4. iShares Russell Mid Cap Value Index (IWS) 5-year return of 15% and over that time lost 0.7% to tax costs;
5. Vanguard Value Index (VTV) 3-year return of 13% and over that time lost 0.5% to tax costs.

Eastern Europe ETFs, Anyone?

Currently, the best way to invest in eastern Europe through exchange traded funds (ETFs) is with iShares MSCI Austria (EWO).  Austria has become the hub for Eastern European commerce and the fund is up 32% for the year.

As more European countries adopt the Euro, there is a stronger case for additional single country ETFs. Slovak lawmakers report their 2007 spending plan is based on a projected 7.1% GDP growth and an average inflation rate of 3.1%. Prime Minister Robert Fico's cabinet is comprised of socialists and nationalists and verify they are aiming to refine the economy to get ready for the adoption of the Euro. There is a 2009 deadline, according to the press release.

Single Country ETFs

Single country exchange traded funds (ETFs) require an investor to put some time and thought into their portfolio. If one wants to go foreign without investing in one single country, there are broad-based ETFs available. 

Roger Nusbaum of Seeking Alpha offers his point that it makes more sense to integrate foreign holdings into the sectors.  He uses the example of energy, that if he wants an energy position he would look to other countries for energy exposure.  Another example would be that investing in iShares MSCI Canada (EWC) would be exposure in natural resources.  If there is too much focus on the country and not on the sectors the country represents, then your portfolio may not be as diversified as you might think.

Some single country ETFs include:

• iShares MSCI Australia (EWA)
• iShares MSCI Austria (EWO)
• iShares MSCI Canada (EWC)
• iShares MSCI Japan (EWJ)
• iShares MSCI Brazil (EWZ)
• iShares MSCI South Africa (EZA)
• iShares FTSE/Xinhua China (FXI)

For full disclosure, FXI is held in Tom Lydon's client accounts.

Emerging Market ETF Investing

Exchange traded funds (ETFs) have made investing abroad more comfortable. Looking at one-year performance, most of the top ten ETFs are emerging markets.  They include iShares MSCI Mexico (EWW), iShares MSCI Austria (EWO), iShares MSCI Brazil (EWZ) and iShares MSCI Singapore (EWS).

We talked to Donald Gold of Investor's Business Daily about how investors should know what they're getting into; during challenging times, foreign ETFs are more volatile. Investing abroad doesn't ensure protection from a weak U.S. market, and a foreign markets' decline will be harder than ours. To protect against steep losses you should sell out if an ETF breaks below its 200-day moving average or falls 8% from its peak, whichever comes first.

It's wise to check an ETFs top holdings. Just because it says "China", it might not offer the diversification you're looking for. For example, iShares FTSE/Xinhua China 25 Index(FXI) represents the 25 biggest Chinese companies listed on London's Financial Times Stock Index.

European ETFs Growing Performance

Exchange traded funds with an international focus have enjoyed better returns than their U.S. counterparts.  European ETFs have been performing well and reaching new highs this month.  The top country performers are iShares MSCI Spain (EWP) up 9% for the month, iShares MSCI Austria (EWO), up 8%, iShares MSCI Belgium (EWK) and iShares MSCI Sweden (EWD) with a 5% gain each.

Sam Patel reports on these ETFs in TheStreet.com and shows that each are heavy weighted in the banking sector, which has been doing well globally.  Spain and Sweden have the fastest grwoing economies.  Spain's economy is the biggest of the four countries.

Country ETFs Capitalize On Eastern Europe

Gross National Product (GDP) in Eastern Europe will run 1-2% ahead of Western Europe while interest rates remain low, reports Murray Coleman at Investors Business Daily. Although there are no specific Eastern European ETFs available, the next best thing is buying ETFs representing surrounding countries.

Barclays offers iShares for both Austria (EWO) and Switzerland (EWL). Banks, telecommunication, transportation and energy companies based in Austria and Switzerland have been well established in Poland, Hungary, Slovakia and The Czech Republic for years. A booming economy and an educated and motivated people should bode well for this "New Europe" in the near term.

ETF Trends - How To Play Eastern Europe - iShares Austria (EWO)

Economies are booming in Cental and Eastern Europe, but finding publicly traded companies to buy in a diversified way isn't easy. The iShares Austria fund (EWO) gives average investors an opportunity to participate:

• Austrian firms derive a substantial portion of their revenue from Eastern Europe
• Vienna has evolved into a hub for Eastern European commerce
• Economic growth in Eastern Europe is projected to continue to expand faster than most other regions. The region is expected to grow 4.5% in 2005.
• Eastern Europe is politically stable and growing at a substantial rate due to admission to the European Union.
• Composition of growth is well balanced, with domestic demand and exports both playing an important role.
• In Eastern Europe, an increasing number of companies are viewed as potential acquisition targets, which could have a positive impact on their stock performance.
• Inexpensive, highly educated work force
• Low corporate tax rates

Roger Nusbaum at theStreet.com points out "The region's expansion is focused primarily on offering much cheaper manufacturing costs than Western Europe. Wages in places like Slovakia are often 10% what they would be in Germany, for example, and as new factories are being built and old factories modernized, it is the Austrian banks that are financing this boom.

ETF Trends in Investors Business Daily - iShares MSCI Austria (EWO)

Investors Business Daily recently launched a section dedicated to ETFs.  We helped Murray Coleman with today's story on iShares MSCI Austria. 

"Most of the top 10 performers in exchange traded funds during the past 12 months are losing steam with institutional investors.

An exception is iShares MSCI Austria (EWO).

Tom Lydon, president of Global Trends Investments of Newport Beach, Calif., is also advising his clients to use Austria as a play on Eastern Europe.

"There are a few closed-end funds to invest directly in Eastern Europe," he said.  "But in open-end funds and ETFs, the iShares product is the only choice right now."

 

Best way to invest in Eastern Europe

Austria continues to be a great way to invest in Eastern Europe.  Austrian banks are financing the boom in Eastern Europe and iShares Austria (EWO - News) is about the only way to get in on the uptrend without buying foreign stocks on overseas exchanges or ADRs (American Depositary Receipts).  Last year EWO was up 73.1% and so far this year it is up 18.4%. 

In a recent trip to Slovakia one can see the explosion of growth. Labor costs are 1/5th of "Old Europe". The people are highly educated, young and full of desire to work. Telecommunications, transportation, banking, retail and manufacturing is booming. Stocks sell at a 30% discount valuation to their US counterparts.

Austria EWO

iShares MSCI Austria (EWO)

(Click on the link above to see Barclays' iShares Fund Details for EWO)

• Austrian firms derive a substantial portion of their revenue from Eastern Europe
• Vienna has evolved into a hub for Eastern European commerce
• Economic growth in Eastern Europe is projected to continue to expand faster than most other regions. The region is expected to grow 4.5% in 2005.
• Eastern Europe is politically stable and growing at a substantial rate due to admission to the European Union.
• Composition of growth is well balanced, with domestic demand and exports both playing an important role.
• In Eastern Europe, an increasing number of companies are viewed as potential acquisition targets, which could have a positive impact on their stock performance.
• Inexpensive, highly educated work force
• Low corporate tax rates

EWO 200-Day Moving Average

The Big Charts one-year chart below shows iShares MSCI Austria ETF (the black line outlines the daily prices) and the 200-day moving average (the orange line highlights the trend line). As you can see, EWO is above the trend line, thus in an uptrend (and has been for the past year), indicating that it is a time to be invested in the ETF.

Returns

A common misconception about investing in global markets is that foreign markets cannot beat the U.S. markets. Below is a snapshot of how the iShares Austria ETF performed in 2004 and 2005 compared to the U.S. market indexes.

2004 2005*
EWO 73.1% 7.8%
S&P 500 9.0% 1.8%
Dow 3.1% (1.3)%

*through 7/29/05