I am retired and take educated guesses on all things financial.

May 15, 2008

May 15, 2008: Crawling SPDR With Potential, State Street's International Small Cap ETF

As I examine recent models on allocation, it is apparent that astute minds are reaching the conclusion that the United States is moving away from global military, economic and political dominance into what can be described as slow decent into a victim-centric redistribution of wealth mentality with third world environments in large areas of our metropolitan areas. What political entities are to blame for this decline are left for the reader to determine. This post is to examine one ETF that will fit nicely into a higher percentage world investment allocation portfolio that is now touted by diversified allocation products. SPDR International Small Cap (GWX) is an excellent choice for a niche in a more global-centric investment scheme.

GWX seeks to replicate the total return performance of the Standard and Poors/ Citigroup World ex-US Cap Range Under $2b Index. The Fund uses a passive management strategy and is non diversified. Although the ETF is listed as a small cap Fund, in reality it looks as though about half the portfolio are Medium Cap companies, with 49% true Small Cap and the rest Micro Cap.

Trading at $33.28 with an expense ration of 0.59%, this ETF is actively traded, has a yield of approximately .95% and a cap rate of approximately $358m. Trading below its 200-day moving average, GWX is likely climbing from its 52-week low of $27.50 towards its high of $39.87. As the Fund invests in developed countries, political risk is minimal.

The lion's share of assets are in small cap Japanese companies (29%). I believe that small-cap Japan is an excellent sector to overweight at this time. The U.K. and Canada each are approximately 11% of the portfolio with over twenty-seven developed countries represented.

The top holdings are as follows (none over .56% of the portfolio)

Nippon Shinyaku
Crescent Pt. Energy
Hong Kong Finance
Randgold Resources
Nankai Electric Railroad
Kas Bank
Eldorado Gold
Miyazaki Bank
Meiji Dairies
Invocare Ltd.

Surprisingly for a Fund of this sort, the PE is only at 14.25 and the Price to Book is 1.55x.

GWX is not apt to either fall off a cliff or shoot to the stars. Instead, as with any solid Permanent Portfolio component, it should provide attractive long term results based upon its positions in smaller companies often times overlooked in developed overseas investment environments. Importantly, it is a good product that would be too daunting to replicate on your own.


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