Goodbye, Old Friend: Reasons for Exiting Australia Positions

| About: iShares MSCI (EWA)
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We said goodbye to a very old friend in the portfolio this week (going back to 2003-old in a couple of instances) as we exited Australia on the equity side of the portfolio. We sold Australia & New Zealand Bank (OTCPK:ANZBY) for large accounts and we sold ETFs for small accounts because they are very heavy in financials.

There have been signs of trouble in the Aussie housing market for a while in terms of various ratios of affordability and second home ownership being out of whack. And while I doubt the fallout will be as bad as in the U.S. I would rather not stick around to find out. As I said these have been issues for a while but have not really hurt the stocks and may not hurt them in the future. But the situation has deteriorated a little (IMO) as time has gone on and the numbers seem to be a little worse perhaps as evidenced by the recent debt downgrades of the four big banks.

All four banks got hit hard in 2008 but less so than the U.S. financial sector. Amusingly ANZ has been the best long term performer of the group and if that was not simply luck on my part then I would attribute this to ANZ having more of a global footprint (really a regional footprint in Asia) which is why I chose it over the NAB and Westpac (I never considered Commonwealth). As I noted in a client email about this we are not rooting for bad things here but quite simply the risk characteristic appears to me to have changed enough to warrant taking this action. If I can buy it back in the low teens I'm sure that I would but we have to see where this goes, and again there may never be any consequence on the stock price for this perceived increase in risk.

For the small accounts (these are ones where 30-40 positions don't make sense for commission reasons) we split the exposure between the Global X Nordic 30 ETF (NYSEARCA:GXF) and iShares Canada (NYSEARCA:EWC). The bigger idea is foreign exposure that avoids Japan and Big Western Europe. I thought about the Norway ETF (NYSEARCA:NORW) but GXF has better sector diversification and holds several stocks from different sectors that we own in large accounts. Additionally a combo of NORW and EWC would have been too heavy in energy for my liking in this case. NORW as an energy proxy in a different type of account would be a different story.

For large accounts I need to figure the best way back into Australian equities and decide the best way in the financial sector to replace ANZBY. I have some ideas for both of course but for now ANZBY has not been replaced.