The current top 10 iShares equity ETFs. China is clearly in
the lead with an estimated return of 8.29% a year followed by Europe with 6.23%
a year. The rest range from just over 6%
to 4.65% for Turkey. All apart from Brazil and Emerging Markets are in
uptrends:
A closer look at the figures for China and Europe is
summarised in the table below:
Fund
|
PE est
|
Dividend
|
Adjusted Yield
|
Growth Rate
|
Total Return
|
China
|
9.57
|
2.53%
|
6.49%
|
6.50%
|
8.29%
|
Europe
|
12.54
|
4.18%
|
6.08%
|
2.40%
|
6.23%
|
Apart from the higher dividend yield for European stocks China
wins hands down. A lower PE ratio, an high adjusted yield (dividend yield plus
50% of retained earnings), and China's higher growth rate give it a higher
total expected return.
Fund
|
Price
|
5yr High
|
5yr Low
|
% below high
|
% above low
|
Short term
target
|
Target % of
high
|
China
|
6625
|
9872
|
3683
|
33%
|
80%
|
8991
|
91%
|
Europe
|
2003
|
2829
|
1614
|
29%
|
24%
|
2361
|
83%
|
Both funds are around 30% off their highs and the Chinese
fund appears more volatile. The short term targets are based on current
earnings and growth forecasts and are prices at which we would start closing
our positions if hit within 3 to 6 months. Increasing dividends or growth
forecasts would make us revise upward our price targets.
Comparing the sector allocation the European fund is clearly
more diversified than the financial heavy Chinese fund:
For this reason I have increased my exposure to Europe.
Despite all the merits of the Chinese fund I feel there is too much downside
potential with the high weighting towards Chinese banks in the fund.
Additionally not spreading myself too thinly is a concern. I already have some
exposure to Chinese stocks in my Far East ex Japan Smaller Companies fund and
Asian exposure with the Asian Property Fund.
These changes see the current portfolio looking like this:
Investment
|
Weighting
|
iShares EUROSTOXX 50
|
55.0%
|
iShares Asian Property
|
17.0%
|
Zopa lending
|
7.9%
|
DJ-UBS Natural Gas
|
7.7%
|
Other Pension Funds
|
5.7%
|
iShares Far East ex Japan Small Cap
|
5.1%
|
Gold
|
1.3%
|
Cash
|
0.3%
|
I've invested most of the cash in the portfolio by
increasing my holdings in Natural Gas, adding more to Zopa and the European
fund that I mentioned above.
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