ETF Pick of the Week: New Ireland Fund 8 comments
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This week's pick is in honor of John Templeton, not just because of his meeting his final summons this week at age 95 but because it highlights one of the key tenets of his legendary investment career. Rather than look for markets that were performing well, Sir John built a career looking for troubled or ignored markets that traded at attractive valuations.
Ireland has gone from darling to outcast in less than a year in the eyes of the global investment community. Due to vastly overvalued property markets and loose banking and fiscal policy, the market is down close to 70% since last fall. Its growth rate has averaged 7-8% during the past decade but growth prospects have been officially lowered to zero for 2009 and its economy actually shrank in the first quarter of this year.
To make matters worse, IRL's top holding are smack in the middle of the property mess with Allied Irish Banks (AIB) and CRH Construction (CRH) right at the top. Property prices in the posh retail areas of Dublin have already dropped 50% and home prices have fallen 20%.
Reasons for Selection:
Sir John Templeton's first maxim was to buy at the point of "maximum pessimism".
The recent turnover to new political leadership in Ireland offers the opportunity to right the Irish ship of state.
IRL trades at a 15% discount to net asset value.
Ireland's stock market is now the cheapest market in the world based on forward price earnings and price to book.
Catalyst: This week's heavy losses at Irish Allied Bank and the lowering of growth prospects have attracted the global value hunters.
Risk Factor: Aggressive
Tip: Build IRL position incrementally, being more aggressive at prices below $15, and you may wish to consider 10% stop loss.
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This article has 8 comments:
Being descended from a long line of Irish-Americans, IRL holds a special place in my heart. Recently, it has held a special place in my accounts with the pretty nice dividend.
Maybe this is a great buying opportunity but I have not read much to convince me that Ireland has the complete package. Hope I'm wrong since we have Irish friends and family.
The property market is going through an adjustment of Japanese proportions. Folks not only overpaid for houses, but they bought 2, 3, 4 or 10 houses, and rented them out. The only people in Ireland who pay rent are immigrants from Eastern Europe who work in construction. Now they're leaving, either returning to Poland or moving to London to work on the Olympics.
Ireland has very little domestic industry. Its biggest employers are US multi-nationals (Intel, Dell, Pfizer), all of whom are in some degree of distress. It's biggest growth industry in the past 10 years has been providing back office administration for financial services companies (not a great industry now). The Public Sector is massively bloated and has awarded itself huge pay and pension increases.
I could go on. The only Irish stock I own is Elan Pharmaceuticals (ELN). I believe some of Ireland's largest banks will go bust in the next 12 months, when the true scale of their lax lending practices comes to light.
Happy investing! jegan