Ireland CEF Thrown Out With the Bathwater

It usually pays big dividends to look inside the hood of an exchange-traded fund. I noticed lately that the New Ireland Fund (IRL) was sinking even though the market looked awfully cheap on a relative valuation basis. Ireland has been a great success story but before pulling the trigger, I took a look at the fund's top two holdings.

The first is CRH plc (CRH) at 16.5%. It is the highly-acquisitive Irish building materials company which just announced that it is going after $4 billion in Cemex assets and has been aggressively moving into US markets to take advantage of pressure on the housing and construction industry. Good opportunistic strategy in my book.

The second largest holding is Allied Irish Bank (AIB) at 15% of assets. AIB has of course been impacted by the banking issues and in particular with the problem of a mismatch between funding and lending rates. But AIB depends on only around 44% wholesale funding for their lending book compared to 50% at French banks, an average of 66% for German banks and 45% cent for UK banks, according to DBRS rating agency

The combination of a cooling domestic property sector and more general concerns about banks has hit Ireland, even though Standard & Poor’s reported last week that the Irish banking system “is in good health” and “prospects remain good overall.”

Allied Irish Bank stock took a 7.1% hit early this week and IRL is trading at a 8.3% discount to its net asset value. It is up 2.77% so far today (as of 11:45 a.m. ET).

Comments

[A RandomWalk]

CRH are a superb company with a solid acquisition strategy and a consistent record of growth. All the banks are suffering because of the perception Ireland domestically is overly dependent on construction which is a view I agree with. AIB are more diversified than BOI and may represent a relative opportunity.