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  • ADRs, ETFs and Golf Clubs 1 comment
    May 18, 2009 1:20 PM | about stocks: EEM, FXI, EWZ, INP, EWW, EZA, CHL, EWY, TEVA, NWSA

    If you’re just getting started in international investing, at some point you’re going to encounter exchange traded funds (ETFs) and American Depositary Receipts (ADRs). These are virtually idiot-proof securities that can be bought and sold through any broker, just like shares of IBM.

    Unless you live in Kuala Lumpur, building a portfolio of Malaysian stocks would be an enormous hassle for an individual investor. The iShares Malaysia exchange traded fund (ticker: EWM) makes it a snap. If you want to invest in a company like Brazilian iron ore giant Vale, you could try opening up a brokerage account in Sao Paulo (pretty hard) or just buy Vale’s NYSE-listed ADRs (much easier, ticker: VALE).

    Unless you live in Kuala Lumpur, building a portfolio of Malaysian stocks would be an enormous hassle for an individual investor. The iShares Malaysia exchange traded fund (ticker: EWM) makes it a snap. If you want to invest in a company like Brazilian iron ore giant Vale, you could try opening up a brokerage account in Sao Paulo (pretty hard) or just buy Vale’s NYSE-listed ADRs (much easier, ticker: VALE).

    To use a golf metaphor, ETFs and ADRs are like hybrid clubs in this sense. They take something that used to be difficult, and make it a whole lot easier. A cross between long irons and fairway woods, hybrids are much easier to hit than the clubs that they are designed to replace. As a result, hybrids have become enormously popular in recent years with weekend hackers.

    But what about the pros?

    In theory, a professional golfer should have no need for a hybrid club. After all, if you’re good enough to make the cut on the PGA Tour, you should be able to hit almost any shot imaginable with the long irons and fairway woods that were already in your bag before hybrids were invented.

    In practice, however, pro golfers now use hybrids just as much as the average duffer. Even Phil Mickelson, the #2 player in the world and one of the game’s most gifted shot-makers carries two hybrids in his bag.

    The reason is simple. Just because a pro can hit a 230 yard approach shot with a perfectly struck 2 iron, if there’s an slightly easier way do it, they’ll take that option every time. And while the “forgiveness” that hybrids offer are of little interest to pros, hybrids can be used to shape shots in a bunch of different ways, expanding the range of shot-making options for the player.

    The same applies in international investing. Professional investors obviously have more tools at their disposal than anyone else. But that doesn’t mean they will deliberately make things harder than they ought to be if simple, yet highly effective tools are available.

    The Harvard University endowment fund is an interesting case in point. With $30 billion of assets, a staff of 180 full-time professionals evaluating investment ideas, and a perpetual time horizon, there is literally nothing that is off-limits for the endowment. If Harvard wants to invest in Turkish small-cap stocks, zinc futures, private equity funds, venture capital, or even timberland, it’s all fair game.

    But guess what? Harvard also owns a surprising amount of international ETFs and ADRs. Tickerspy.com highlights a few here:

    Looking at Harvard’s top U.S.-listed holdings at the end of Q1, which were recently disclosed to the SEC, the largest U.S.-listed equity holding by a wide margin was ETF iShares MSCI Emerging Markets Index (NYSE: EEM - News), where it was cutting its stake during the quarter.

    Meanwhile, Harvard was upping its exposure to individual emerging markets via increased stakes in iShares FTSE/Xinhua China 25 Index (NYSE: FXI - News), iShares MSCI Brazil Index (NYSE: EWZ - News), iPath MSCI India Index ETN (NYSE: INP - News), iShares MSCI Mexico Investable Market Index (NYSE: EWW - News), iShares MSCI South Africa Index (NYSE: EZA - News), and others.

    Harvard also reopened its stakes in mobile telecom firm China Mobile (NYSE: CHL - News), iShares MSCI South Korea Index Fund (NYSE: EWY - News), media giant News Corp (Nasdaq: NWSA - News), and Israeli pharmaceutical company Teva Pharmaceutical Industries
    (Nasdaq: TEVA - News).

    Random Roger digs up some more names from Harvard’s filings here.

    Of course, none of this is to suggest that you can produce the same investment results as the pros. Just like carrying a hybrid golf club won’t make you the next Phil Mickelson either. But the important lesson here is that, at least as far as international investing is concerned, you can do some of the very same things that Harvard is doing in your Charles Schwab account. That simply wasn’t possible a decade or two ago.

    Stocks: EEM, FXI, EWZ, INP, EWW, EZA, CHL, EWY, TEVA, NWSA
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  • Pax Americana
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    enjoyed reading this
    11 Jul 2009, 09:19 AM Reply Like
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