Africa and Middle East - the next big thing?

I first heard about Africa and its economy from Nicholas Vardy when I attended the Money Show in Washington DC sometime back. Although impressed by the talk and the numbers, I somehow kept postponing blogging about it. Turns out, the African investment has yet again been endorsed by another major source - T. Rowe Price's newly launched Africa and Middle East Fund (TRAMX). Both these sources remain bullish on Africa (T.Rowe on Middle East as well), and the numbers justify their bullishness.



African economy highlights:

• African economy is currently benefiting from its natural resources like oil and gas, an increase in commodity prices, debt forgiveness and increasing political stability
• Excluding South Africa, the sub-Saharan African has averaged a growth of 7% over the last 5 years
• Excluding India and China, Africa is growing faster than Asia
• Between 1995 and 2005, African stocks showed compound annual growth of 22%, with equity growth for 2006 in Kenya, Morocco, Uganda and Botswana being 46%, 75%, 69% and 55% respectively
• China has been trying to improve its relationship with Africa (from a selfish angle of-course, to get their natural resources). Trade between China and Africa soared to $55 billion last year

Middle-Eastern economy highlights:

• The rising oil prices in recent years has produced strong economies in the Middle East which include countries like Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates
• Real GDP growth for the GCC countries has been 6% in 2006
• Governments of these countries are opening up their economies to reduce their dependence on oil prices, led by Dubai with several high-profile projects in infrastructure, financial services and tourism

T.Rowe Price Africa & Middle East Fund highlights:

• The primary markets the fund invests in include Bahrain, Egypt, Jordan, Kenya, Lebanon, Morocco, Nigeria, Oman, Qatar, South Africa and UAE
• Other potential markets include Algeria, Botswana, Ghana, Kuwait, Mauritius, Namibia, Tunisia and Zimbabwe
• The fund has a high risk/return profile since it can invest in small and mid-cap stocks has has a relatively concentrated portfolio consisting of 30-40 companies
• Financial companies represent the largest sector exposure, as commercial banks are benefiting from rapidly growing economies.
• The fund also plans to focus on companies related to infrastructure spending, and also from wireless telecommunications
• No-load fund with an expense ratio of 1.75%
• Current NAV: $12.07, P/E: 14.9, Earnings growth rate: 12.1
• Country details:

• Sector exposure:

This is a high-risk/high-return investment and serves those investors whose goals are so aligned. If the African and Middle Eastern market continues to grow significantly, this investment will provide great long-term returns.

Voluntary Disclosure: I currently do not own the T.Rowe Price Africa and Middle East Fund. Various sources referred for this article include the T.Rowe Price Investor Report, Seeking Alpha etc.

WisdomTree launches small-cap Emerging Markets dividend-paying ETF

WisdomTree announced the launch of a new small-cap emerging markets dividend-paying ETF yesterday, which started trading on NYSE Arca today with ticker DGS (NYSEArca: DGS). This ETF is based on WisdomTree's Emerging Markets SmallCap Dividend Index, which, according to their calculation has beaten the MSCI Emerging Markets Index by by about 9%, when backdated for the last 10 years.

Key index facts:

• Top 10 countries based on weightage include (guess what, no BRICs in the top 10):
• Taiwan
• South Africa
• Korea
• Thailand
• Malaysia
• Israel
• Turkey
• Mexico
• Indonesia
• Chile
• The maximum weight assigned to the topmost holding is just 2.68% - which means that the fund is highly diversified, which is good, since this is a risky play.
• Dividend yield: 4.39%
• Companies included in the Index fall within the bottom 10% of total market capitalization of the WisdomTree Emerging Markets Dividend Index as of the annual index measurement date
• IBD reports that the index includes some 369 odd dividend paying stocks across 17 different countries
  

Key fund facts:

• The fund, being an ETF, obviously tries to track the above-mentioned index
• NAV as of 10/30/07: $51.50
• Price: $51.40
  
• Expense Ratio: 0.63%

This fund is probably what some high-risk investors were looking for anyway. Since the index includes only dividend-paying companies, it offers a cushion against the volatility of the emerging markets small-caps. Also the fact that an ETF by very nature is highly diversified, the risk is further reduced.

To know more about ETFs, click here and here.

Voluntary Disclosure: I currently own WisdomTree shares.

ETF Investing - Part 2 (Sample ETF Portfolio)

This is Part 2 in the series of posts about ETF Investing. Click here to read part 1 about ETFs and their advantages/disadvantages. This post is dedicated to building a sample ETF portfolio.

Some things to keep in mind:
-First things first, you got to decide if you want to dedicate a part of your portfolio to ETFs or your entire portfolio.
-Think about your risk appetite
-Think about your rewards expectation

Higher risk = Higher volatility = Higher profits OR Higher losses

Sample Portfolio 1 -Aggressive (Stock ETFs constitute your entire portfolio):
If you are like me, you would want to dedicate about 30-40% of your portfolio to US, and the rest 60-70% international. Out of the 60-70% international, I would set aside maybe 20% for developed economies like Western Europe and the rest 40-50% for emerging economies, and maybe 10-20% for sector-specific ETFs. Here are the specific ETFs I would allocate money to:
1. Domestic US ETFs:

• SPDR S&P 500 (AMEX: SPY) [10%]: Invests in US S&P 500 companies, usually large caps. I would put this at low risk, low rewards. Seeks to correspond to the growth and yield of the US S&P 500 index. Expense ratio 0.08%.

• Vanguard Mid-cap growth (AMEX: VTI) [20%]: Invests in US mid-cap companies, I would put this as medium risk, medium reward. Seeks to track the MSCI US Mid Cap Growth Index. Expense ratio 0.13%.

• Vanguard Small-cap growth (AMEX: VOT) [10%]: Invests in US small-cap companies, I would put this as high risk, high reward. Seeks to follow the MSCI US Small Cap Growth index. Expense ratio 0.12%.

2. International ETFs:

• Vanguard Emerging Markets Stocks (AMEX: VWO) [30%]: Invests in stocks of emerging market economies. I would put as very high risk, very high reward. Seeks to track the MSCI Emerging Markets index. Expense ratio 0.3%.
  

• iShares Pacific ex Japan (AMEX: EPP) [15%]: Invests in stocks of Pacific markets except Japan. Seeks to track the MSCI Pacific ex-Japan index which constitutes economies like Australia, Hong Kong, New Zealand, and Singapore markets. Expense ratio 0.5%.
  

3. Sector specific ETFs:

• Oil and Energy - Energy Select SPDR (AMEX: XLE) [5%]: Like most investors, I am bullish on oil and energy, since these are limited natural resources with increasing demand. I would devote 5% of my portfolio to this ETF, which invests in oil, gas, energy equipment & services companies. Expense ratio 0.24%.
  

• Technology Select SPDR (AMEX: XLK) [5%]: Technology has become or is becoming a part of every field, and considering that tech demand will continue to increase, I would also devote 5% of my portfolio to this ETF, which invests in technology economic sector - which includes hardware, software and telecom companies. Expense ratio 0.24%.
  

• Market Vectors Steel ETF (AMEX: SLX) [5%]: Considering a bullish demand for steel especially from emerging economies, I will also devote 5% to this steel ETF. Expense ratio 0.54%.
  

More sample portfolios to follow.

Part1
Part2
Part3

WisdomTree: ETFs in 401K?

Yesterday WisdomTree (Pink Sheets: WSDT) announced the launch of their innovative 401k platform featuring ETFs. Although ETFs have been around since the early 1990s, this is the first time they will be offered as part of any 401K plan. Under this offering, they will also make ETFs of other companies like Vanguard and iShares available along with their own. It will also feature some low-cost, no-load, no 12b-1 fees actively managed mutual funds. WisdomTree will offer two options for the 401k plan:

• The "model plan" features six professionally built ETF portfolios depending on the participant's risk tolerance appetite and target retirement date. It includes ETFs from WisdomTree, Vanguard and iShares as well as some actively traded mutual funds.
  
• The "Custom plan" lets an investor make his own choice with available ETFs/funds and create his own customized portfolio.

About WisdomTree: WisdomTree offers ETFs that are fundamentally weighted as opposed to others that are market-cap weighted. The investing principle behind the former being that ETFs should constitute weights of companies in an index depending on their core fundamentals like earnings and dividends vs. the investing principle in the latter which constitutes stocks based on their market cap.

It seems to me like WisdomTree has the first mover advantage in bringing ETFs to 401K, when the popularity of ETFs has soared in recent years. Also smart is the move to offer Vanguard and iShares ETFs as well as some actively traded funds along with its own ETFs to appeal to a broader audience. What remains to be seen is how and when corporates start offering this plan to their employees.

For the entire press release, click here.

Voluntary Disclosure: I currently own WisdomTree (Pink sheets: WSDT) shares.

Loan $25 to fulfill dreams and build livelihoods through Kiva.org

Recently, I came across Kiva, a non-profit organization, which facilitates connections between borrowers (who are owners of unique small businesses in developing countries) with lenders . Borrowers come from impoverished countries around the world, who are working class entrepreneurs in need of money. Kiva partners with microfinance institutions around the world, which in turn choose these qualified borrowers. You can only lend $25 to a borrower, and they have enforced this limit to curb the huge inflow of lenders that they are currently experiencing. Kiva includes some interesting borrower profiles, excerpts below:

• Cambodia: Mrs. Yab Valin is a widow with 4 children, 2 sons and 2 daughters. She learned to sew clothes from the trainer in the village, and then she started to sew for the villagers, going from one village to another. Her sewing improved every day.

  Then in 1992, she began her business in sewing clothes at home. She has expanded her sewing business by buying more sewing machines and employing the young ladies in her village. Her youngest daughter also sews clothes at home.

  This is Mrs. Yab's first application for a loan from MAXIMA. She requests a loan of $1,000 to buy one more sewing machine for her employee.

• Azerbaijan: Xidirov Rovshan was born in the city of Sumqayit. He is 37 years old and the father of two children. He currently lives with his family in Sumgayit, situated in the eastern part of Azerbaijan. He started his business in 2002 selling perfume and nail varnish. With this business, he earned little money. The money was enough for only some of his family's basic needs. He had difficulty covering his family's other needs including medication, clothes, schooling etc. At this moment, his best clients are young ladies who work at offices. He needs $600 to buy silver goods and merchandise in order to have a bigger inventory and be able to offer clients greater variety and quality. With the income from his business, he will be able to support his children’s studies and help with the family’s expenses. He will repay the loan within 12 months.

Again, remember this is only a loan, and will be repaid back - I have seen repayment terms of 12-14 months. You can loan money through your credit card using Paypal, and can choose to receive periodic updates about the business through Kiva. Once the loan is repaid, you can choose to either take your money out or loan it to a new business. The site currently lists 14 defaulted borrowers vs. 3105 who have paid back in time.

Would you consider this as a good way to give back and encourage true entrepreneurial spirit at the same time? Would you consider this as a good investment in society at the same time helping someone stride towards economic independence?