Here's an interesting ETF riddle: Is it possible for a fund
issued by the world's largest ETF provider that is nearly five
years old with almost $579 million in assets under management
that features Apple (Nasdaq:
AAPL
) as its top holding to lead a relatively anonymous existence? In
the case of the iShares MSCI Kokusai Index Fund (NYSE:
TOK
), the answer is "Yes."
Admittedly, Apple's allocation in the 1,250-stock fund is just
2.43%, so TOK is by no means an Apple ETF, but with 1,250
holdings, the fund is long on diversity.
One of the more recent feathers in TOK's cap is that it
garnered an Overweight rating from S&P Capital IQ earlier
this year
as a play on a stronger Japanese yen
.
The MSCI Kokusai Index is a free float-adjusted market
capitalization index that is designed to measure the equity
market performance of developed markets excluding Japan. The
index tracks 23 countries, though 93.3% of TOK's country weight
is tied up in 10 countries. The U.S. leads the charge with a
weight of 58.1% while the U.K. chimes in at 10.5%.
Excluding Japan isn't a problem given that Japanese stocks
continue to struggle despite calls that their valuations are
compelling. The iShares MSCI Japan Index Fund (NYSE:
EWJ
) is down almost 2% year-to-date. TOK's biggest problem at the
country level is exposure to a dozen Euro Zone members. A
combined weight of more than 9% to commodities-rich Canada and
Australia isn't helping TOK's cause in this market environment,
either.
At the sector level, an 18.3% allocation to financials might
give investors pause at the moment, but TOK's beta is only
slightly higher than the S&P 500's. Technology, consumer
staples, energy, health care and consumer discretionary names
also land double-digit weights with industrials not far behind at
9.93%.
TOK's top-10 holdings include eight Dow components with Apple
and Nestle (PK: NSRGY), the world's largest food company, the
outliers.
The expense ratio of 0.25% is a point in TOK's favor, but
volume is light at less than 9,200 shares per day and Finviz data
indicate the fund is neither optionable nor shortable. As for
yield, TOK's 2.5% dividend yield is about 50 basis points better
than what the S&P 500 offers and only slightly higher than
what an investor would get from the SPDR Dow Jones Industrial
Average (NYSE:
DIA
).
Regarding valuation, TOK's price/earnings ratio checks in at
almost 18 and the fund trades at 3.5 times book value. It should
be noted that TOK's P/E calculation excludes companies with
negative earnings and iShares sets the P/E ratio of any company
with a P/E over 60 to 60. The book value excludes negative book
values and any company over 25 times book value is set to 25.
For now, TOK warrants a wait-and-see approach. The ETF's
technicals are damaged. TOK failed to break through resistance at
$43 in March and has since made a lower high around $42. If the
200-day moving average doesn't act as support, TOK could see the
$35-$36 area. TOK hasn't traded below $35 since the third quarter
of 2011, so if that area gives out, wait for TOK to show
legitimate signs of bouncing back rather than trying to catch a
falling knife.
For more on TOK, please click
HERE
.
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