Mimicking Calpers' Emerging Markets Strategy with CEFs, ETFs (ETF EWY; CEFs IF, KF, KEF, IFN, IIF)

Includes: EWY, IF, IFN, IIF, KEF, KF
by: SA Editors

The Wall St. Journal reports (sub. req.) that the California Public Employees' Retirement System (Calpers) has raised its ratings for Pakistan, Indonesia and the Philippines, and lowered its views on India and Sri Lanka, "suggesting it will adjust the allocation of its $193.8 billion global portfolio accordingly."

Consulting firm Wilshire Associates, which advises the fund, released an analysis of "permissible equity markets" in which Calpers, the largest pension fund in the U.S., can invest.

Wilshire rates companies on a scale of 1.0 to 3.0, and Calpers will only invest in countries rated higher than 2.0. Last year, Calpers said it invested $3.9 billion in emerging markets. Wilshire's key recommendations from the study:

* Indonesia saw improvements in political stability, transparency, labor practices and transaction costs, and was recommended for inclusion in the fund's FTSE Emerging Markets Index. Its rating was increased by 0.13 to 2.0.

* India saw a decline in these areas, but had an improvement in labor practices.

* Sri Lanka will be close to removal from the index

* Pakistan inched closer to becoming an acceptible investment destination, increasing by 0.20 points to 1.8. Together with Egypt, these had the greatest improvements in ratings.

* The Philippines' score was increased by 0.13 point to 2.1.

* South Korea fell 0.07 points to 2.5 due primarily to questions around political stability.

Individual investors can apply Wilshire's recommendations by:

  • Increasing exposure to Indonesia through Credit Suisse's Indonesian CEF IF (Note Morgan Stanley's warning about continued inflation concerns for Indonesia).
  • Reducing exposure to Korea (ETF EWY; CEFs KF, KEF), India (CEFs IFN, IIF).
  • We welcome readers to leave comments suggesting ways to invest in Pakistan, the Philippines and Egypt.