Getting More Familiar With Foreign

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Includes: ACKDF, EIDO, ENZL, EWS, PBLOF, THD
by: Roger Nusbaum

As a follow up to the news that Schwab will be providing much easier and friendlier access to foreign markets and the sinking feeling that, while the cascading down of asset prices is likely behind us (insert nervous smile), the government is still hell bent on trying to fix things despite not knowing what to do, I spent a fair bit of time this weekend looking at foreign companies in search of future candidates for client portfolios.

Part of the task here is to consider countries I don't own. While it is difficult to know what my country weightings will be in the future it would be preferable to own more countries with small weightings than own just a handful at 15-20% each. I dug up an interesting name for most of the sectors.

Public Bank Berhad (OTCPK:PBLOF) -- a hat tip to David Hunkar for the name, first of all. It is a big Malaysian bank. It is a large component of the iShares Malaysia ETF (NYSEARCA:EWM), has had a tight correlation to EWM other than going down much less than EWM during the worst of the recent meltdown. The Malaysian banks appear to be on much firmer footing than the banks in crisis countries and also those in China. It yields almost 4.5% and the website seems easy to navigate for learning more about it.

Bumrungrad Hospital -- This is from Thailand and part of the medical tourism theme I've mentioned a few times. I am getting more intrigued by Thailand despite the obvious political risks. Over the years Thailand has been, in my opinion, one of the more volatile markets in Asia. Bumrungrad tracked closely to the iShares Thailand ETF (NYSEARCA:THD) until lagging quite recently. Per Businessweek, both revenues and earnings have been increasing slowly and steadily over the last four years (this is how far back B-week goes). The yield is a little over 2%. I think there are better ways in to Thailand but this is a good reminder about the existence of the medical tourism industry and maybe a catalyst to look into it more. A bigger name in the space, Parkway from Singapore, recently got a takeover offer.

Tambang Batubara Bukit Asam -- This is a coal company from Indonesia that I found as a component of one of the Indonesia ETFs. Indonesia is a tough one for me. The manner in which people are spread out, the poverty and the violence are negatives. The population is large and young, the country has resources although recently went from oil exporter to importer and the equity market has done very well. The stock has wildly outperformed the Jakarta Composite but been much more volatile in doing so. Not surprisingly earnings and revenue have been growing quickly. I think I might prefer one of the plantation companies but there are a lot of coal stocks and Tambang has been around for quite a while.

Auckland Airport (ACKDF.PL) -- It usually correlates closely to the NZ 50 Index and is a large component of the new iShares NZ ETF (NYSEARCA:ENZL). The volatility is quite low but it still went down plenty during the meltdown. Currently it yields a little over 5.5%. Most of the numbers stink, but the NZ market has bounced back much less after the meltdown than many other markets. Buying the airport is a play on things turning around for the economy and being reflected in the stock market at some point. When things do improve (maybe rebuilding after the earthquake will be a catalyst?) I would expect the stock to continue to capture the broader market. For now though the name is down 49% from its peak.

Charoen Pokphand -- Back to Thailand for a relatively large food company. It makes "upstream" products like animal feed and "downstream" products like packaged food, restaurant supply and pet food. The yield is a little over 4% and the stock is up a lot in the last year. Revenues and earnings have been mostly growing in the high single digits with a couple of upside reports thrown in. This a large cap company, but not the largest, and a more realistic way for someone to access Thailand as opposed to Bumrungrad but, to be clear, it is up a lot and would seemingly need to correct at least timewise if not pricewise.

Jardine Cycle & Carriage -- This is from Singapore, makes various types of scooters and motorbikes that are ubiquitous in any video from Asia and no doubt is related to conglomerate Jardine Matheson. It has done very well of late, pulling away from iShares Singapore (NYSEARCA:EWS). As a discretionary company revenue dropped in 2009 but it was able to increase earnings (similar to a lot of other companies in the US). The yield is in the twos which is below many other Singaporean stocks. It is interesting that the company imports into some big growth areas like Vietnam. The company also makes construction equipment and is involved with infrastructure. It will be worth digging into this one to see how the revenue breaks down and whether there is anything about trying to break into other markets.

Maroc Telecom -- I mentioned this one before, it is the big phone company in Morocco. I've seen it listed in one or two frontier market ETFs, it was mentioned in Barron's once before and Vivendi owns a huge stake. The primary listing appears to be in France but I may have that wrong. There has not been much in the way of growth in the last couple of years and not much is forecast for the next couple of years. In addition to Morocco the company has a presence in several other exotic countries. This one along with its huge 7% yield it a bet on what Africa (ex South Africa) will become which is risky in that it seems like investors having been waiting on Africa for a long time.

All of the companies have been around for a while and trade pretty well on their home markets although the US traded volume stinks. I don't know how much I will look at these companies in the future (I think a couple of them) but it is always fun to look at new (to me) companies. To the extent you use a couple of foreign ETFs and a couple of NYSE listed ADRs for foreign exposure the end result of sifting through a lot of these companies could be to turn up three or four names for the portfolio (my goal anyway). Taking 10-12% from domestic exposure and putting it into new foreign exposure could have a bug impact on results if the countries and the proxies for those countries are well chosen.

There are obviously plenty of ETFs that can create the percentage to foreign that someone might want but they are blunter instruments than individual stocks. I believe in using both in constructing a portfolio. Although I am not crazy about the term core and explore (probably splitting hairs) I do think that do-it-yourself investors willing to spend the time can build a portfolio where for most sectors a large portion of the allocation can go to a sector fund and a small portion to a well researched (whatever that means to the end user) foreign stock.

This may sound like a lot of work and it is (obviously I love doing this sort of thing) but I continue to believe that the differences in country performance with the US getting left behind will repeat during this decade (not to say the same countries will be the best countries). I've been saying all along that the same old same old won't cut it. Something like the above is what I think will cut it.

Disclosure: None