Consider PMI In Top Down Analysis When Evaluating Country ETFs For Yield

 |  Includes: ACWI, EPOL, EWC, EWU, IDX, SPY
by: Richard Shaw

When thinking about country ETFs in terms of yield, it may be helpful to consider whether a county's economy is expanding or contracting, as one general top down indicator of the potential for the dividends to increase.

In addition to a top down look, be sure to do a bottom up review as well by studying dividend histories and other fundamental data for the local companies not listed in the US. The long way is to find and read the financials for each company (not always available in English), or to subscribe to a database that provides company fundamental data.

One very broad, preliminary top down approach is to look at frequently updated macro data for the country overall. One of those macro data points is the Purchasing Managers Index ("PMI").

PMI is clearly insufficient as a diagnostic tool alone, but it is useful to add color to a country fund analysis; and to a more limited degree analysis of some individual companies, such as utilities.

A PMI above 50 indicates growth, and a PMI under 50 indicates contraction.

Country ETFs for which PMI figures Were Just Released:

Markit reports PMI survey results done by them and others.

The most recent results show the United States is still in growth mode at 51.5 for August (where 50 is the divide between expansion and contraction). Last month the U.S. was at 51.4.

The New Orders component was a bit above 50 (expanding) but the New Export Orders was a bit below 50 (contracting). The difference between those two numbers in this case is a general indication of the strength of the U.S. economy versus weakness of the world economy excluding the U.S.

The world PMI was 48.4, and indication of mild contraction, but an improvement from the 48.1 level in July.

Countries Ranked by August 2012 PMI
Country Proxy ETF Yield ttm August Direction
Rising (>=51)
Mexico EWW 1.50 Dn
Canada EWC 2.07 Dn
India PIN 0.30 Dn
Russia RSX 2.16 Up
Indonesia IDX 1.64 Up
USA SPY 1.91 Up
Flat (>49<51)
Ireland EIRL 1.71 Dn
Turkey TUR 2.07 Up
The Netherlands EWN 2.90 Up
United Kingdom EWU 3.66 Up
Falling (<=49)
World ACWI 2.32 Up
Poland EPOL 5.32 Up
Vietnam VNM 0.97 Up
Japan EWJ 2.15 Dn
China GXC 2.39 Dn
South Korea EWY 0.67 Up
Taiwan EWT 3.76 Dn
Italy EWI 3.54 Up
France EWQ 3.34 Up
Australia EWA 4.74 Up
EuroZone EZU 3.77 Up
Germany EWG 2.72 Up
Spain EWP 10.64 Up
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Disclosure: QVM has positions in SPY as of the creation date of this article (September 4, 2012). I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.