ETF Pick of the Week: New Ireland Fund

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.

Comments

[BicVFW14-0:]

I'm a long-term holder of IRL. I'm definitely going to load up more at these recent prices. I do like the recommendation for an aggressive incremental buying approach at prices sub-$15.

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.

2008 Jul 11 02:21 PM

[Larry House:]

I agree with your approach, buy when there is blood in the streets, etc., but that doesn't mean you have to buy when it is still going down. Let IRL find a bottom and build a base, and then it is a better buy when it has started an upward trend.

2008 Jul 11 02:38 PM

[Think-About-It:]

Fundamentally is Ireland a growth story like Brazil, China and probably Taiwan next? Do they have globally competitive industries, sound currency, fiscally conservative government and a young educated population with a storng work ethic? These type of variables drive long term growth.

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.

2008 Jul 12 04:12 AM

[Dame Daxx:]

Irealnd is going to get worse before it gets better.

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.

2008 Jul 12 06:52 AM

[bsharvy:]

What the source for this: "Ireland's stock market is now the cheapest market in the world based on forward price earnings and price to book."

2008 Jul 12 09:49 AM

[kainschild:]

I'm with LarryH. Vic if you're talking long term you need to look at a monthly chart. little over 5 years ago it was trading in the $6 range! let the monthly technical indicators tell you when to get back in.

2008 Jul 12 12:10 PM

[Urbane Gori...:]

Nothing wrong with buying when everybody else is selling ... But these charts just point to further decay ... (I made a similar mistake with FXI by the way ... I won't do that again... ) .. Ireland is too dependent on outside issues... We here in the US have not finalized our bottoming process with housing and financials, and Europe (Ireland in particular) has just begun this process ... Look at all the false bottoms we have had here in the US and project that onto Ireland.. Wait till the weekly stochastic turns up .. Or if you wish to be safer, wait till the MACD runs positive.... At very least wait until we get out of our mess, which might encourage the rest of the world to think that things are turning around ... Lets face it, there are only two real stories for the near future - Financials and commodities.. Ireland has no useful commodity ... But they do have big issues with Financials.

Happy investing! jegan

2008 Jul 12 02:31 PM

[TTHWebster:]

Seems a little irresponsible to recommend IRL at this time even with the trailing tip. Grandma may want a bargain on her portfolio but she may expire before this stock recovers her investment.

2008 Jul 13 11:49 AM