CASSH-ing In

Includes: EWA, EWC, EWH, EWL, EWS
by: Russ Koesterich, CFA

Last fall, I introduced the concept of investing in the CASSH countries - Canada, Australia, Switzerland, Singapore and Hong Kong. This theme has played out well year-to-date, and I still believe these smaller countries are likely to outperform broader global benchmarks over the long term. Let me explain why.

First, while larger developed countries have struggled with anemic growth and high debt burdens, the CASSH countries are in much better condition with relatively low debt, small deficits, and less traumatized labor markets.

Despite the outperformance, the CASSH countries still exhibit valuations generally below the larger developed regions. On both a price-to-book and price-to-earnings basis, the CASSH countries are, on average, about 10% cheaper than the average valuation of the United States, Europe, and Japan.

In addition, for investors looking for income, a basket of CASSH countries provides a respectable dividend yield. The average dividend yield on the CASSH countries - which is an equal weighted average of all the CASSH countries - is roughly 3.50% based on Bloomberg data as of July 31. That is about 1% higher than the average rate on the larger developed regions.

One objection we sometimes hear is the assertion that the CASSH countries are just a commodity play. However, while Canada and Australia both have large weights to commodity-driven sectors, this does not hold true for the group as a whole. Hong Kong and Singapore are largely driven by financials, and Switzerland has a significant weight to defensive sectors, specifically pharmaceuticals and consumer staples.

A strategy that I like to use is to underweight some of the larger developed regions, particularly southern Europe, and use that to fund a long-term overweight to the CASSH countries.

For investors seeking exposure to these countries, I would suggest looking at the iShares MSCI Australia Index Fund (NYSEARCA:EWA), or the iShares MSCI Canada Index Fund (NYSEARCA:EWC), the iShares MSCI Hong Kong Index Fund (NYSEARCA:EWH), the iShares MSCI Singapore Index Fund (NYSEARCA:EWS) or the iShares MSCI Switzerland Index Fund (NYSEARCA:EWL).

Source: Bloomberg

Disclosure: The author is long EWA, EWC, EWH, EWS and EWL.

Disclaimer: In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Securities focusing on a single country may be subject to higher volatility.

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