ETF Talk: Indonesia is an Interesting Asian Alternative

Doug Fabian

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

For the past 50 years, many Asian countries have risen swiftly in world economic rankings. Among these is the archipelagic nation of Indonesia, which ranked #38 on this year’s list, compared to #50 in last year’s rankings. Indeed, my colleague Nicholas Vardy recently noted in his Global Guru column that Indonesia has become the most improved G20 economy since 2006. If you wish to capitalize on this rise, you may want to consider the Market Vectors Indonesia Index ETF (IDX).

This non-diversified fund seeks investment results which, before fees and expenses, match the performance of an index which tracks Indonesian companies. For the purposes of the index, and thus for IDX, a company is considered an “Indonesian company” if it is incorporated in Indonesia and/or generates at least half of its revenues in the island nation.

Year-to-date, the fund has moved downward due to a disastrous August, but this situation offers a potentially advantageous entry point for investors willing to take some risk. IDX has recovered swiftly from similar drops in recent years, and this ETF managed a small gain in 2012 as a result of such resurgence. For investors interested in capturing income, IDX offers a dividend yield of 2.17%.

IDX_100213

As a fund that represents the stock market of an entire country, IDX has holdings in a wide spectrum of sectors, with the heaviest weightings in financial services, 28.45%; consumer defensive, 14.87%; basic materials, 14.82%; and consumer cyclical, 13.43%. IDX also boasts smaller allocations in real estate, healthcare, utilities, communication services, energy, industrials and technology.

The top 10 of the fund’s individually held companies make up 57.68% of IDX’s total assets. Among these are PT Bank Central Asia Tbk, 8.96%; PT Telekomunikasi Indonesia, Tb, 8.46%; Astra International Tbk, 7.60%; Bank Rakyat Indonesia (Persero) Tbk, 6.97%; and PT Bank Mandiri Persero Tbk, 6.05%.

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As the world’s fourth-most-populous country, Indonesia has plenty of potential to continue growing. After IDX’s recent lows, this is an ETF that likely is under the radar of most investors. IDX has recovered from pullbacks before and this history, combined with the country’s prospects for continuing growth, makes IDX an investment worth considering.

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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