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Building a 'New CASSH' Portfolio

Stocks in this article: EWH ENZL EWA KROO EWC CNDA SU

Increasing energy prices are a big part of the New CASSH concept but among the various New CASSH iShares country funds there are no overweight positions in energy. Suncor dominates the oil sands of Western Canada. Oil sands extraction is very expensive but becomes more economical, creating more earnings growth, as oil prices increase which is what Burbank is calling for.

The role of Switzerland appears to be that of a safe haven, its currency benefits as other countries devalue their currencies. Switzerland has tried unsuccessfully to prevent the franc from appreciating against other currencies most notably the euro. The currency is too small for the Swiss National Bank to prevent appreciation. If the franc does appreciate, it makes Swiss exports more expensive which potentially hurts Swiss equities. In this context it would be better to own the Currency Shares Swiss Franc Trust (FXF) instead of the iShares MSCI Switzerland Index Fund (EWL) which is an equity fund.

Singapore is thought of as a Switzerland, of sorts, of Asia. It has low debt, high growth rate and enormous reserves. For now there are not a lot of fund choices beyond the iShares MSCI Singapore Index Fund (EWS). The fund is 50% financial companies, and during the crisis the fund was down 65% at its worst but the banking system is on very firm ground and the Singapore ETF has bounced back 152% from its low vs. 60% for the S&P 500.

Buying after such a huge recovery might be buying high but it also sets an expectation for greater volatility than the U.S. market should there be another severe leg down to the financial crisis. Singapore was less affected fundamentally, went down more and recovered faster. This pattern and circumstance is similar to how Singapore weathered the Asian Contagion in 1997 and so could be a template for future crises as well.

The final destination in the theme is Hong Kong. The iShares MSCI Hong Kong Index Fund would seem a logical choice but that fund is 60% in financials almost half of which is real estate exposure. Hong Kong pegs its dollar to the U.S. dollar. Given the devaluation underway in the U.S. it is easy to imagine some sort of consequence to Hong Kong from trying to maintain the peg that adversely affects financial stocks there thus hurting the iShares fund. In seeking to avoid or minimize that exposure, I think it makes more sense to consider parts of China that have more of a fundamental or demographic tailwind.

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