Wednesday’s ETF To Watch: New Zealand Investable Market Fund (ENZL)

by on December 8, 2010 | ETFs Mentioned:

Equities resumed their upward trend in the beginning of the week when a wave of upbeat news subdued the market’s recent fear of global economic uncertainty. The last two days have seen the S&P 500 set multi-month highs, gold climb past $1,430 an ounce, the Fed hint at yet another round of quantitative easing, and to top it all off the bulls cheered on the extension of the Bush-era income-tax cuts. However, a stronger dollar and ongoing crises in Europe have managed to tug the markets lower once more leaving investors with a clouded outlook heading into 2011. With uncertainty still prominent in domestic and foreign markets alike, many have decided to take their investing cues from central banks who have had a reputation for moving the markets in this post financial crisis world [see also How Investors CAN Play The BRIC Through A Different Set Of Country ETFs].

Later today, the Reserve Bank of New Zealand is scheduled to release its decision regarding interest rates, with global investors paying close attention to the bank’s statement, taking note of any specific comments regarding its outlook on inflation. The Reserve Bank of New Zealand is expected to keep rates unchanged at 3.00% for a third consecutive month as analysts expect the bank to continue its cautious approach, especially given ongoing weakness in the housing market and the private sector which further justifies the forecast of an unchanged rate. Yet, the possibility of a rate increase is slim nonetheless, given the commodity boom and the recent uptick in retail spending and employment. Fears of inflation are sure to be on the mind of New Zealand policy makers, but sustainable economic recovery likely precedes the need for conservative monetary policy, at least for the time being [see also Are We Out Of ETF Ideas? Not By A Long Shot].

With the interest rate decision on the radar screen, today’s ETF to watch is the New Zealand Investable Market Index Fund (ENZL). The fund seeks to replicate the MSCI New Zealand Investable Market Index, which is a free-float adjusted market capitalization weighted index designed to measure the performance of equities in the top 99% by market capitalization of equity securities listed on stock exchanges in New Zealand. ENZL has performed respectably so far since its inception earlier this year, returning a little over 12% since its debut in early September, with considerably less volatility than comparable developed foreign markets [see ENZL Fundamentals].

The fund focuses its assets on the industrial materials (26%), telecom (15%), and financials (12%) sectors. Out of its 25 total holdings, ENZL has 19% in Fletcher Building (FBU), a building and construction material company, with the next largest holding going towards Telecom Corporation of New Zealand (TEL-NZ) at 15%, and Contact Energy (CEN-NZ) with 7% [try the Stock Exposure Tool]. Though rates are expected to hold, the unexpected increase in retail spending and employment may lead to a surprise in today’s announcement, which could make this fund a big mover on the day.

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Disclosure: Photo courtesy of Miguel A. Monjas. No positions at time of writing.