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TheStreet Open House

TheStreet.com Ratings: Irish Fund Needs No Luck

With signs increasingly pointing to a further slowing of the U.S. economy, TheStreet.com Ratings encourages investors to take a thorough look at global opportunities for growth.

Indeed, our models have shown that over the past three years, foreign-focused mutual funds have outperformed their domestic counterparts, and this trend shows no signs of a letup.

With this in mind, where should an investor look for global growth?

It does not appear that the recent turmoil in the emerging market of Thailand will affect that region in any manner similar to the havoc wrought by the Asian crisis of 1997. However, perception is often everything in the volatile emerging-market arena, and investors may want to avoid Asia until the Thai political situation stabilizes.

An Isle of Growth

Which brings me to Ireland. By investing in the country's stable yet rapidly growing economy, you can capture returns more commonly associated with emerging markets and avoid the political and economic instability that often plagues developing regions.

The vehicle to use is the (IRL) New Ireland Fund , a closed-end fund that trades at a modest discount of 5% to its net asset value of $30.23. TheStreet.com Ratings gives it an A rating, and it ranks in the top 30 of the approximately 900 closed-end funds, including exchange-traded funds, that we rate.

New Ireland's objective is long-term capital appreciation through investing in equity securities of Irish companies. The fund's average turnover during the past 10 years is a very low 15%, which suggests that it changes its entire portfolio every six and a half years.

This is definitely a fund for the buy-and-hold investor who can tolerate the risks -- and wants to reap the benefits -- often associated with global investing.

As the following charts illustrate, the fund has a concentrated portfolio, with only 23 holdings and a 52% stake in building and construction and finance.



A Bet on Growth
Sector Percentage
Construction & Building 32%
Financial 20
Food & Beverage 14
Other Assets 7
Health Care Services 7
Diversified Financial Services 5
Business Services 4
Publishing & News 4
Transportation 4
Food & Agriculture 3

The below table shows New Ireland's recent holdings.

The Stocks
Holdings (Net Assets: $141.65 million) Percentage
Allied Irish Banks PLC 16.73%
CRH PLC 14.93
KingSpan Group PLC 8.63
Kerry Group PLC - A 7.03
Grafton Group PLC-UTS 5.02
C&C Group 4.86
Irish Life & Permanent PLC 4.64
Ryanair Holdings 4.54
DCC PLC 4.45
FBD Holdings PLC 4.25
IAWS Group PLC 3.91
Independent News and Media PLC 3.64
Icon PLC - Sponsored ADR 3.59
United Drug PLC 3.37
McInerney Holdings PLC 2.2
RPS Group PLC 1.77
Irish Estates PLC 1.58
Norkom Group LTD 1.1
Horizon Technology Group PLC 1.09
Greencore Group PLC 1.04
Fyffes PLC 0.84
IONA Technologies PLC 0.53
Blackrock International Land PLC 0.08

Buying low is a basic tenet of investing. However, the New Ireland Fund has jumped from $19.75 on Nov. 25 to a 52-week high of $28.75 on Sept. 25, so it may not seem to be an ideal purchase under that principle.

However, investors should bear in mind that the Irish economy is expected to continue to grow into 2007.

Ireland's year-over-year GDP growth as of Sept. 20 was an impressive 5.8%; consumer prices in the country have risen 4.5% during the same period; and the jobless rate is a low 4.4%. These are strong economic fundamentals.

Of course, any slowdown in the U.S. will have ripple effects worldwide, and could adversely affect Irish growth rates. On the other hand, moderation may be just what the country's economy needs, as there are fears that it is showing signs of overheating -- the 4.5% rise in consumer prices certainly supports this.

In addition, if the U.S. economy slows down, investors worldwide will likely pay a premium for any economy that has a stable political environment coupled with strong growth, is physically close to the European continent, and has a relatively stable currency, in this case the euro.

The New Ireland Fund has an outstanding track record, and its near-term results, seen in the chart below -- along with the performance of the Irish Stock Exchange Equity Overall Index for the same periods -- suggest that it is on track to match its historical returns.

In short, investors looking for international exposure should examine this fund carefully.

Irish Eyes Are Smilin'
Time Period
as of 9/18/06
IRL
Return
Irish Stock Exchange
Equity Overall Index - ISEQ
1 Week 2.64% 2.23%
1 Month 7.97 4.44
3 Month 21.69 11.47
YTD 30.66 11.87
1 Year 35.75 24.09
3 Year 36.5 22.28
5 Year 25.11 12.06

Sam Patel, CFA, is the manager of mutual fund Research for the TheStreet.com Ratings.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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