Spain (proxy EWP) is a wreck. Everybody knows that. But it will not always be that way.
Just as there was an historic yield opportunity to buy the S&P 500 in 2009, there will be one in Europe sooner or later. Within Europe, Spain may be a focal point of that opportunity (maybe not, but it deserves watching).
We all learned that there is light after dark, from the U.S. market. There will be light after dark in Europe too. The challenge is to avoid false dawns. That will take a detailed understanding of what is inside of the Spain index and monitoring how its constituents are evolving as the market moves along.
Someday - not right now - we may find that the yield and risk/reward balance favor placing some money into the Spain ETF from iShares.
Can't Rely on the Yield Now:
The yield, depending which source you uses is in the 8% to 10% range. That's a big number, but likely to decline since nearly 40% of the underlying stocks are banks, which are at high risk of dramatically cutting or suspending dividends.
When the forces change direction toward an improving price and stabilized dividends, the yield on EWP may be attractive. Detailed observation could make seeing that turning point possible.
Right now the price is like a lead weight on the end of a fishing line.
A question at some point will be whether the price has declined substantially more than the dividend potential. It is possible when things turn around, which they will somehow do sometime, that an opportunity to capture a good yield will present itself.
Part of knowing when that condition might be involves understanding what is held inside the fund.
Just looking a the standard sector allocations really isn't good enough.
Sector and Industry Allocation:
Expanding that to the sector and industry of each holding is better, but still not really enough.
Quantitative Data (Yield, Valuation and Ratings):
You really need to take a look at the yield and valuation attributes, and understand in some detail what each company does (or at least what the companies do that make up the bulk of the market cap of the holdings).
A table of yield, valuation data, quality and growth ratings from some source (in this instance from ratings Wright Investors' Service) something like this one is a good way to periodically update your quantitative view.
The table shows high yield, moderate valuation multiples (but on high uncertainty projections) and low growth rates (as seen in the 1-20 numeric growth element at the end of each Wright's rating).
Then a keeping a summary of business descriptions to initially inform you and subsequently remind you of what the underlying companies actually do is really important, if you are trying to determine if the storm is over. After that, read their website and at least some of their financial statements or investor presentation package is a must.
Here are summary business descriptions for the 14 stocks that account for 80% of the market-cap of EWP.
Telefonica SA is a Spain-based company engaged, together with its subsidiaries, in the telecommunications sector. The company operates through three geographic business segments: Telefonica Spain, Telefonica Europe and Telefonica Latin America. It primarily provides public and private telecommunication, media and entertainment services; under such brands as Movistar, O2, Vivo and Terra, among others. As of December 31, 2011, the company owned such fully consolidated subsidiaries as Telefonica Moviles Espana SAU, Telefonica de Contenidos SAU, Telefonica Digital Espana SL, Centro de Investigacion y Experimentacion de la Realidad Virtual SL, Telefonica Internacional USA Inc and Telefonica de Centroamerica SL, among others. In addition, Banco Bilbao Vizcaya Argentaria SA was the Company's major shareholder with 5.66% of its interest.
Banco Santander SA (Santander) is a Spain-based financial institution primarily engaged in the retail banking. The company operates principally in Spain, the United Kingdom, Portugal, the Latin American countries and the United States. It operates in four segments: Continental Europe, the United Kingdom, Latin America and Sovereign. Continental Europe segment covers all retail banking business, wholesale banking and asset management and insurance conducted in Europe, with the exception of the United Kingdom, under such names as Santander Totta, Santander Consumer Bank and Bank Zachodni WBK, among others. The United Kingdom includes retail and wholesale banking, asset management and insurance. Latin America includes the specialized units in Santander Private Banking, as an independent globally managed unit. Sovereign includes all the financial activities of its subsidiary Sovereign Bank in the United States, which includes retail and wholesale banking, asset management and insurance.
Banco Bilbao Vizcaya Argentaria SA is a Spain-based international financial group with presence in 32 countries. The company's activities are focused in such business units as banking, pension and insurance in Spain and Portugal, Mexico and South America. In the U.S. and Puerto Rico, the Bank only comprises banking business. In addition The Company has two cross-sectorial business units, Corporate and Investment Banking and Global Retail & Business Banking, which includes retail banking, commercial and small and medium enterprises (SMEs) banking, payment systems, consumer finance and private banking, among others. BBVA is a parent company of Grupo Banco Bilbao Vizcaya Argentaria, which comprises such entities as BBVA Banco Frances SA, BBVA Capital Finance SA, BBVA Senior Finance SAU and BBVA International Limited, among others. On March 7, 2012, BBVA acquired the whole ammount of shares in Unnim Banc SA.
Industria de Diseno Textil SA (Inditex SA) is a Spain-based company primarily engaged in the textile industry. The company's activities include the design, confection, manufacturing, distribution and retail of men, women and children apparel, footwear and fashion accessories; as well as home furnishings and household textile products. The company's products retail distribution is conducted through a chain of more than 5,000 commercial stores, which are structured in eight brands: Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque. The company is a parent of Grupo Inditex, a group which comprises a number of controlled entities that, as of January 31, 2012, had operations established in over than 80 countries located worldwide.
Repsol YPF SA is a Spain-based integrated oil and gas company engaged in the exploration, production, refining, distribution and marketing of crude oil, natural and liquefied petroleum gas (LPG), petrochemicals products; as well as the generation, transportation, distribution and supply of electric power. The Company is active in three business sectors: Upstream, responsible for the exploration and the development operations of crude oil and natural gas reserves; LNG, which is active in the operation of Liquid Natural Gas activities; and Downstream, engaged in the refining and distribution of oil products, chemicals and LPG. In addition, the Company owns a holding in the Argentinean company YPF and the Spanish Gas Natural SDG SA, as well as other many controlled entities in over 30 countries worldwide.
Iberdrola SA is a Spain-based company principally engaged in the energy sector. Its main activities include the provision of services related to the production, transmission and distribution of electric power and its by-products, computer and telecommunications services, services related to the treatment and distribution of water, as well as urban and gas retailing services, among others. The Company is also involved in the real estate operations, as well as engineering and construction activities. The Company is a parent of Grupo Iberdrola and through its subsidiaries is present in approximately 40 countries, including Spain, Portugal, the United Kingdom, Germany, France, Italy, Greece, Russia, China, Egypt, Canada, Mexico, Brazil and the United States, among others.
Abertis Infraestructuras SA (Abertis) is a Spain-based company. It is engaged in the management of mobility and telecommunications infrastructures. The Company operates through three business areas, tollroads, telecommunications infrastructures and airports. It has operations established in 15 countries of Europe, America and Africa; such as Spain, the United States, Chile and South Africa, among others. As of December 31, 2011, the Company owned such fully consolidated subsidiaries as Abertis Infraestructuras Finance BV, Serviabertis SL, Autopistas CESA, Castellana de Autopistas SACE, Abertis Motorways UK Ltd, Abertis Infraestructuras Chile Limitada, Abertis USA Holding LLC, Abertis Portugal SGPS SA, Abertis Mexico SL, Abertis Airports SA, Infraestructuras Viaries de Catalunya SA and Autopistas de Puerto Rico, among others. In addition, Criteria CaixaHolding SAU was the Company's major shareholder with 19.66% of its interest.
Banco de Sabadell SA is a Spain-based financial institution primarily engaged in the banking sector. The Company is structured in five areas, Commercial Banking, Corporate Banking and Global Business, Markets and Private Banking, BS America, Bancassurance, as well as Other Businesses. Its services and products include saving accounts, fixed-term deposits, consumer and commercial loans, mortgages, credit and debit cards, financial assessment, private banking, corporate finance and other banking operations to businesses and individuals. The Bank is a parent of Grupo Banco Sabadell, which comprises a number of banking institutions that operate under such names as Sabadell Atlantico, Sabadell Solbank, Banco Herrero, Sabadell Guipuzcoano, Banco Urquijo, Solbank, Sabadell United Bank and ActivoBank. As of December 31, 2011, Mayor Vent SL Unipersonal was the Company's most significant shareholder with 5% of its interest.
Gas Natural SDG SA (Gas Natural Fenosa) is a Spain-based company engaged in the distribution and supply of natural gas, the transportation of liquefied natural gas, as well as the generation and distribution of electric energy in the Iberian Peninsula and Latin America. In addition, through its subsidiaries, the Company is engaged in the provision of support activities for the energy industry, as well as the in the construction and development of engineering projects. Through Sagane SA, the Company holds interests in Metragaz SA and EMPL, companies which operate and maintain the Moroccan section of the Maghreb-Europe gas pipeline. As of December 31, 2011, the Company owned other subsidiaries with operations worldwide, such as Red Union Fenosa SA, Gem de Suministro Gas SUR 3 SL, JGC Cogeneracion Daimiel SL and Energias Especiales de Andalucia SL, among others.
Amadeus IT Holding SA, formerly WAM Acquisition SA, is a Spain-based company engaged in the provision of Information Technology solutions for the tourism and travel industries. The Company mainly specializes in the transaction services and technology solutions to travel providers, which includes full service carriers and low-cost airlines, hotels, rail operators, cruise and ferry operators and car rental companies. It acts as a worldwide network connecting travel providers and travel agencies through a processing platform for the distribution of travel products and services. The Company is a parent of Amadeus Group, a group which comprises a number of controlled entities with operations established worldwide. As of December 31, 2011, Societe Air France was its major shareholder with 15.22% of its interest.
Red Electrica Corporacion SA is a Spain-based company primarily engaged, through its subsidiaries and affiliates, in the energy sector. The Company specializes in the transmission of electric energy, as well as in the operation of electric systems. The Company manages the Spanish high-voltage transmission grid and is responsible for its development, maintenance and improvement of the network's installations. The Company's activities also include the coordination between the generation, transmission and distribution of electric energy. The Company is a parent of Grupo Red Electrica, a group which comprises Red Electrica de Espana SAU, Red Electrica Internacional SAU, Red Electrica de Espana Finance BV, Red Electrica Andina SA , Transportadora de Electricidad SA and Redcor Reaseguros , among others. In addition, Sociedad Estatal de Participaciones Industriales was its major shareholder with 20% of its interest.
Mapfre SA is a Spain-based holding company principally engaged in the insurance sector to businesses, professionals and individuals. The range of the Company's products and services includes insurance policies of direct life, property and casualty, health, automotive and third party liability, among others. In addition, Mapfre SA is active in the management of pension funds, retirement plans and investment funds, as well as the provision of healthcare services in Spain. The Company is a parent of Grupo Mapfre, which comprises a number of entities active in the insurance, reinsurance, financial and real estate sectors with operations established worldwide. As of December 31, 2011, the Company' subsidiaries were Mapfre Familiar SA, Mapfre Vida SA, Mapfre Empresas SA, Mapfre America SA, Mapfre Re Compania de Reaseguros SA, Mapfre Global Risks SA and MAPLUX Reinsurance Company LTD, among others. In addition, Fundacion Mapfre was its majority shareholder with 64.62% of its interest.
ACS Actividades de Construccion y Servicios SA is a Spain-based holding company primarily engaged in the construction and services sectors. The Company's activities are structured in five business areas: Construction, Concessions, Environment, Industrial Services and Strategic Investments. Through its subsidiaries and affiliates, the Company specializes in the development of civil works projects, as well as residential and non-residential building; the promotion, financing, construction and operation of all type of infrastructure; waste collection, management and treatment; installation and maintenance of electrical, gas and water distribution networks, and the operation and control of systems used for the provision of industrial and urban services, among others. The Company is a parent of Grupo ACS, a group which comprises a number of controlled entities with operations established in North, Central and South America; Europe; Africa; the Middle East; Asia and Oceania.
Banco Popular Espanol SA is a Spain-based financial institution principally engaged in the banking sector. The Bank's services and products include saving and current accounts, fixed-term deposits, investment funds, commercial and consumer loans, mortgages, debit and credit cards, cash management, financial assessment and other banking operations processing services to businesses and individuals. The Bank is a parent company of Grupo Banco Popular, a group which is active in the banking sector, such as Banco de Castilla SA, Banco de Credito Balear SA, Banco de Galicia SA and Banco de Vasconia SA, among others. As of December 31, 2010, the Bank operated a network of 2,224 branches, of which 1,972 were located nationwide and the rest in Portugal (Banco Popular Portugal) and the United States (Totalbank). On January 26, 2012, the Company has announced that the Banco Pastor SA's Board of Directors has approved its proposed public offer acquisition.
Picture View of Prices, Earnings and Dividend Patterns:
Finally, get a sense of how the price, earnings, dividends and perhaps other dimensions are shaping up over time - whether things are getting better or worse. Tables of data are static and need clarification as to the direction of movement. Charts like these can help.
The following are charts for all of the stocks in EWP that make up 80% of the market-cap of the index. They are presented from highest allocation weight to the lowest allocation weight.
Disclosure: QVM has no positions in any identified security as of the creation date of this article (April 16, 2012).
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Extra Risk on Non-U.S. Exchanges: If securities on non-U.S. exchanges were identified, this disclaimer applies to those securities.