NEW YORK (TheStreet) -- One of the benefits to exchange traded products is the democratization of sophisticated strategies and innovative ideas for do-it-yourself investors. A few days ago, a new acronym ala BRIC started making the rounds derived by John Burbank from Passport Capital -- New CASSH.
New CASSH stands for New Zealand, Canada, Australia, Switzerland, Singapore and Hong Kong. Burbank believes that those countries stand to benefit the most if the financial crisis lingers on. Additionally Burbank said the following in the
"The way the Western world is dealing with its problems is essentially trying to appreciate and print money, and that is going to the detriment of emerging markets as they have to deal with higher food and energy prices, At least in the West, where food and energy are a lot lower, they don't have this problem, at least not to the same degree. And in the case of (the New CASSH) asset class, Canadians and Australians are essentially beneficiaries of inflation, New Zealand has agriculture."
This line of thinking is certainly plausible and to the extent it is appealing there is a way to create the concept with ETFs.
One element of the strategy pertains to the financial crisis carrying on longer. If this is plausible then it stands to reason that there will be more dominoes to fall, and if that is the case then loading up on ETFs heavy in financial stocks would be a bad idea. Four of the six "New CASSH" iShares country funds have 30% or more in financial stocks including 60% in
iShares MSCI Hong Kong ETF
There are two alternatives to going all in with the six funds. One would be to simply embed some combination of these countries into a diversified portfolio that has other exposures or seeking out narrower funds or individual stocks to contribute to building the New CASSH portfolio.
iShares MSCI New Zealand Investable Market Index Fund
only has 14% in financial stocks which makes it a reasonable proxy for the New CASSH theme. However, there is very little agriculture exposure in the fund which is the reason that Burbank likes the country. One development to keep an eye on is whether NZ dairy co-op
ever goes public. It would be one of the largest holdings in the ETF and also be easily accessible as an individual stock making the agriculture exposure more direct.
iShares MSCI Australia Index Fund
is fine proxy for the country but it has 43% in financial stocks with only 27 in materials; the sector that includes commodity miners. A better way to play the theme with a fund would be the
IndexIQ Australia Small Cap ETF
. The small cap fund is 39% in materials stocks with only 6% in financials. If world currencies devalue then the resources mined out of the ground become more valuable the creating a path for the smaller ETF to outperform the large cap iShares fund.
Canada is obviously oil rich which plays right into Burbank's theme. The
iShares MSCI Canada Index Fund
is 25% energy and 21% materials. Another choice is also from IndexIQ with its
Canada Small Cap ETF
which is 50% materials and 19% energy. I think a better way still would be to use an oil stock like relative mega cap
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
instead of the
iShares MSCI Switzerland Index Fund
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
. 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
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.
The best choices in the regard might be the
GlobalX China Consumer ETF
as a middle class emerges in China with more discretionary income or the
EG Shares INDXX China Infrastructure Index Fund
. This fund also capitalizes on a better quality of life in China (as opposed to Hong Kong).
The bigger idea here is trying to avoid unhealthy market segments. We are currently debating how large the second round of quantitative easing will be and over what time frame it will occur. This is a conversation about desperate policy maneuvers that thus far have not been effective. In that light, it makes more sense to simply seek out countries that do not need to take desperate measures such as the New CASSH countries.
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Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
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