Another catalyst that could work in ENZL’s favor is weakness in the New Zealand dollar caused by the Fonterra debacle. In recent weeks, the International Monetary Fund and even New Zealand’s own prime minister have called the kiwi overvalued. ENZL is not a hedged currency fund, but New Zealand’s industrial firms have been clamoring for a weaker dollar. The Reserve Bank of New Zealand has not obliged, proving reluctant to lower interest rates or engage in quantitative easing, a stark departure from the game plan employed by other developed world central banks.
The industrial sector is 15.7% of ENZL’s weight. NZD/USD traded sharply lower in the wake of the Fonterra news. An alternative view is necessary, however. ENZL has recently shown a positive correlation with the New Zealand dollar. As the kiwi has faltered over the past three months, so has the ETF. In the past month as the kiwi has regained some steam, ENZL is up nearly 4.2%. ENZL does offer investors that are willing to embrace the currency risk some compensation in the form of a 30-day SEC yield of 4.32%.
iShares MSCI New Zealand Capped ETF
ETF Trends editorial team contributed to this post.