By Carl Delfeld of Chartwell ETF and ETF Pick of the Week
Here's my ETF pick for this week.
iShares MSCI France (FXI)
France may seem as an odd pick in this investment climate but EWQ has a number of factors working in its favor. France’s (EWQ) President Sarkozy got off to a blundering start but has recently regained some momentum.
Recently, he has rammed through a “modernization of the economy” law, which slashes red tape for entrepreneurs and increases competition in the moribund retail sector. The retirement age is also being raised by a year and companies are to be allowed to negotiate working time directly with employee representatives to permit more than a 35-hour week.
Unemployed people who refuse more than two job offers will face penalties. Another good sign, cargo-handling is being transferred to the private sector in a sweeping reform of ports, a union stronghold.
Reasons for Selection:
The recent policy changes outlined above signal that France is moving in the right direction.
Even if the French economy stagnates, its stock market is dominated by leading multinationals able to search for growth around the world. Ten of Europe’s largest 40 multinationals are based in France.
On our relative valuation tables, France is looking good trading at 5.4 times cash flow and 1.54 times book value.
Catalyst: Don’t expect a near term pop in EWQ but low valuations coupled with policy reforms will attract global equity managers interest.
Risk Factor: Moderate with low valuations offering some downside risk protection
Tip: A collection of country ETFs may be a better play that the leading MSCI EAFE index ETF (EFA) that has 45% of its basket in the UK and Japan.
Thank You!
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