It does not get any better than an AAA sovereign credit
rating, but as the Netherlands recently reminded investors, the
much-coveted country credit score is not to be taken lightly.
Earlier this week, Fitch Ratings revised its outlook on the
Netherlands' AAA rating to negative from stable.
Using the Standard & Poor's rating scale, there are
14 countries with the AAA credit rating
. Two - Lichtenstein and Luxembourg - are not represented by
. That leaves 12 countries that are and dozens of ETFs with which
to see if the AAA rating has been at all meaningful in terms of
equity returns in recent months.
The recent performances of the notable ETFs tracking some
AAA-rated nations has been mixed, but one trend is clear:
will want to give consideration to a catchy
as a way of profiting from the AAA rating. Note this does not
include all 12 AAA-rated nations that are represented by ETFs and
the list uses the S&P ratings scale.
iShares MSCI Australia Index Fund (NYSE:
) Buoyed by a resurgent Chinese economy, which has helped spark
higher iron ore prices, the largest Australia ETF is higher by
just over three percent year-to-date. However, that also means
EWA is lagging the S&P 500 by nearly 100 basis points.
There are things to like about EWA beyond the fact that it
tracks an AAA-rated country that is the world's 12th-largest
economy. The ETF features a 30-day SEC yield of 3.88 percent and
a trailing 12-month yield of 5.18 percent,
according to iShares data
Those numbers are better than what investors get with the
comparable France and Italy ETFs, arguably come with less risk
and undeniably come with Australia's superior sovereign rating.
However, there is at least one noteworthy risk to consider with
The Aussie dollar, despite the best efforts of the Reserve
Bank of Australia, is one of the stronger developed market
currencies. The longer the Aussie remains strong, the better the
chances are some of EWA's holdings will see their profits crimped
(think mining and exporting names). EWA does not offer a hedge on
iShares MSCI Netherlands Investable Market Index Fund (NYSE:
) Perhaps it is a sign that financial markets have little regard
for ratings agencies, but impressive is the fact that EWN has
proceeded to trade higher since Fitch lowered its outlook on the
Netherlands' AAA rating to negative from stable last week.
That news was reported on February 5, but over the past five
days, EWN has posted a modest gain.
As is often the case with international ETFs, there is a good
news/bad news story with EWN. It cannot be ignored that the
Netherlands have not faced economic problems on par with Greece
or Spain. Additionally, conservative investors can warm to EWN's
over 35 percent weight to the consumer staples sector.
On the other hand, Dutch banks have been problematic. Fitch
also lowered its outlook on ING, ABN Amro and BNG to negative
from stable, noting that
all three are either state-owned or have received
Financials account for almost 19 percent of EWN's weight and
ING Groep (NYSE:
) is the ETF's second-largest holding.
iShares MSCI Singapore Index Fund (NYSE:
) Singapore is the second member of
of the CASSH acronym to appear on this list
with Australia being the other, though EWS has traded slightly to
the downside this year.
EWS has a few worthwhile features that could lend themselves
to some upside for the ETF this year. First, Singapore has an
enviable unemployment rate of just 1.9 percent. Speaking of
percentages, EWS has a trailing 12-month yield of nearly four
percent. Although this an international ETF, Singapore gives
investors a developed market avenue to Southeast Asia without
taking on emerging markets risk.
As such, the ETF's beta against the S&P 500 is just 1.11,
according to iShares data
The trade-off with EWS is that
Singapore is expected to be the
of Southeast Asia's five major economies this year.
That is to say that if 2013 is truly a "risk on" year, EWS
could wind being a laggard relative to comparable ETFs tracking
nations such as the Philippines, Thailand and Vietnam.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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