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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 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 & Poors 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.
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