ETF Talk: Take a Look at South Africa

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

South Africa is a country for investors to watch. Key reasons include its status as one of the most developed economies in Africa, its gross domestic product (GDP) of a little more than a half-trillion dollars in purchasing power parity (PPP) and its population of about 50 million. Ranked as a “Middle Income Country” by the World Bank, South Africa is rich in minerals such as gold, diamonds, platinum and palladium, all of which tantalize investors. An exchange-traded fund (ETF) that’s tied to South Africa’s market returns is the iShares MSCI South Africa Index Fund (EZA).

This non-diversified fund invests at least 90% of its assets in the securities that comprise an underlying index that consists of stocks traded primarily on the Johannesburg Stock Exchange. The fund entails components of consumer discretionary, financial and materials companies.

EZA has yet to begin trading strongly this year and even took a dip during the summer before starting to recover in recent weeks. However, the fund gained 14.93% last year, and it has a dividend yield of 3.38%. Recent economic data suggests EZA could benefit later this year. South Africa’s Purchasing Manufacturers’ Index (PMI) hit a five-month high in July, indicating strong factory output growth.

EZA-081413

EZA’s largest sector holding is in communication services, comprising 22.08% of the ETF’s assets. Other key holdings include 21.99% in financial services; 15.42% in basic materials; 13.14% in consumer cyclical; and 9.16% in energy. Roughly 54.93% of the fund’s assets are invested in its top ten holdings. EZA’s top five holdings are MTN Group LTD ORD, 11.04%; Nuveen Pennsylvania Municipal V, 9.06%; Renesola Ltd. Common Shares of, 9.02%; Standard Bank Group Ltd., 5.75%; and Firstrand Limited, 4.03%.

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A recent rise in palladium has enhanced its allure as a hot commodity for investors, as it hit $850 per ounce last month, aiding EZA’s recovery. In fact, South Africa produces 36% of the world’s palladium, so that commodity’s increased price is significant for this fund. If the price of palladium continues to increase, and South Africa’s manufacturing growth continues, EZA could make strong gains later this year.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.

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