With equity markets declining in much of the developed world, many investors have put a greater focus on stable commodity-producing economies that seem to have weathered the recent downturn better than most. Countries such as Australia and Canada come to mind as markets that have been able to grow thanks to vast natural resources for which there is huge demand from rising powers such as India and China. Despite this focus on developed market exporters, one of the world’s most important and unique economies remained without its own country-specific ETF…at least until today.
iShares announced today the launch of the MSCI New Zealand Investable Market Index Fund (ENZL), the first ETF offering pure play exposure to the land of the Kiwis. ENZL will track the MSCI New Zealand Investable Market Index, a free-float adjusted market capitalization weighted benchmark designed to measure the performance of equity securities in the top 99% by market capitalization of the equity securities listed on stock exchanges in New Zealand. “The iShares MSCI New Zealand Investable Market Index Fund provides financial professionals, institutions and individuals first-to-market access to a developed country in the midst of a strong economic recovery,” said Noel Archard, Head of US Product at iShares, BlackRock. “As the trend for international investing via single countries increases, the new iShares fund further enhances our large single country iShares ETF lineup. Investors are increasingly interested in the precision of single country investing to implement international-focused investment strategies.”
The fund will hold roughly 23 securities in total with heavy weightings going towards the materials (23%), telecommunications (16%), and consumer discretionary (14%) sectors. The fund’s top holdings include Fletcher Building (20%), Telecom Corp. of New Zealand (16%), and Auckland International Airport (8%). The weighted average P/E is relatively high, coming in just north of 20, and the index has a historical correlation with the S&P 500 of close to 0.80 [also read ETF Plays On The Next Developed Markets].
Filling A Developed Market Hole
Before this new fund launched, investors seeking exposure to New Zealand had very few options. The only other “pure play” was the WisdomTree Dreyfus New Zealand Dollar Fund (BNZ), which essentially offers exposure to New Zealand money markets [also see Warning: Use Caution When Investing In Currency ETFs Of Commodity Dependent Nations].
On the equity side, exposure was especially scarce; according to the Country Lookup Tool only eight ETFs offered any exposure to the economy. The largest weighting comes from the WisdomTree Pacific ex-Japan Equity Income Fund (DNH), which allocates a paltry 4.1% to the country [see all the equity ETFs which offer exposure to New Zealand here].
Risks and Rewards
New Zealand has a very interesting economy known for a laissez-faire attitude towards the financial markets. Although it is a developed market with per capita incomes on par with Europe, the country has a very small manufacturing sector and still relies on agriculture for a large percentage of its exports. However, the country remains a popular destination for business seeking to open hubs in the region. According to a recent competitiveness report [PDF], New Zealand ranked 20th in the world for total competitiveness and remains one of the most business friendly countries on the planet. The country ranked especially high for its health and education system, quality of investor protections, and the strength of the financial system; it ranked in the top ten for quality of math and science education, tertiary school enrollment, investor protections, soundness of banks, and ethical behavior of firms, showing just how far and wide the quality of the New Zealand legal and political system spreads. To top things off the country was also voted by Transparency International as having the least corrupt government in the world, allowing investors to rest assured that any assets invested in the nation will be safe over the long-term [also see Seven Most Corrupt Country ETFs].
Yet, like any country, investing in New Zealand is not without risks. The country has a relatively high current account deficit and still imports a good deal of its oil, despite the wealth of natural resources. Furthermore, a high unemployment rate and policy of non-intervention into the markets, while commendable, could leave the important agricultural sector open to risks should prices sink in the near future. Nevertheless, this new fund represents further innovation in the ETF industry which could help to fill a gap in many investor portfolios who are looking to add a dynamic commodity producing nation to their holdings.
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Disclosure: No positions at time of writing.