Bigger Isn't Always Better - IndexUniverse.com

Why I Own: EWM
iShares MSCI
Malaysia ETF
Name: Gary Gordon
Title: President
Firm: Pacific Park Financial Inc.
Founded: 1984
Location: Aliso Viejo, CA
AUM: $95 million
All ETFs? No (75%)
ETFR: Why did you pick EWM?
Gordon: Malaysia has been one of my
favorites for three years. EWM only has
about, over last year, a 0.5 correlation
with VWO, which is kind of a weak correlation
in the world of stocks, where correlations
tend to be 0.8, or 0.9. The fund
is also one-fifth as volatile, with a beta of
0.17 with the S&P 500. You often can’t
even get bonds with volatility that low in
the current market environment.
ETFR: Why not Indonesia, through the
iShares MSCI Indonesia Investable Market
Index Fund (NYSE Arca: EIDO)?
Gordon: For one, Indonesia is far more
volatile. Secondly, Indonesia’s economy
has much higher inflation—double that
of Malaysia. And its growth is expected
to decline in 2012 because they’re going
to have to fight that inflation.
In contrast, inflation is stable in Malaysia.
It has the lowest inflation in all of
Asia, except for Taiwan. And its growth
is expected to accelerate in 2012. With
the Japanese rebuilding, they’ll need lots
of tropical timber and liquefied natural
gas that comes from Malaysia. Because
of that, Malaysia’s growth is going to increase
in the next year, but its inflation—
unlike everywhere else in the region—is
expected to be stable.
Indonesia and India, for example,
have incredible growth stories, but they
both have to slow it down, so that’s the
difference. Meanwhile, Malaysian unemployment
is only 3.2 percent. It doesn’t
get much better than that.
top-performing funds. This year, it’s better
than most of the emerging markets, and
it’s on par with the S&P 500 right now.
ETFR: I noticed that financials are the
biggest part of the portfolio.
Gordon: What’s interesting is what it
dosen’t have: a lot of industrials or materials.
With emerging markets, particularly
Russia, Brazil—any of the BRIC countries—
you usually get a lot of energy and materials,
or industrials. The opposite is true
for Malaysia. So you’re getting a different
area of the emerging market field that you
can’t get from big funds like Vanguard
Emerging Markets (NYSE Arca: VWO).
The first reaction people have when
they see the financials is to panic. But
here’s the twist on that: The safest banks
in the world are Asian in origin. If we
were left dealing with an Asia currency
crisis like in ’98, it might be a different
story. But China’s been tightening its reserves
and raising bank reserves so that
they could avoid the problems that happen
here. And Malaysia is in a good situation
as far as that’s concerned.
Sure, there are drawbacks. But the
risk, the beta itself, tells you that it hasn’t
been something subject to rapid swings.
That’s attractive to people who are trying
to lower the volatility of their portfolio.
So if the macroeconomic picture is
iShares MSCI Malaysia ETF
Equity: Malaysia - Total Market
Issuer: BlackRock
Legal Structure: Open-Ended Fund
Expense Ratio: 0.53%
AUM: $994.53 million
ADV (60-Day): 3,161,736
Avg. Spread: 0.07%
good and their microeconomic is equally
good, the corporations are just as solid.
Those are positive things.
ETFR: Do you think that this is an investment
theme a lot of people aren’t aware of?
Gordon: Investors don’t have to do
much more than look at the trends
and look at the risk profiles and see it’s
doing well. But I think anyone who’s
had an Asia focus understands: China
is the big dog. China is the next big
economy. China is the one that runs
the world. But that doesn’t mean that
investing directly in China is your best
choice anymore than when Japan was
king of the block, that investing directly
in Japan was your best choice.
ETFR: What do you think is missing from
EWM?
Gordon: I might reduce the weighting
at the top, just because there are only 43
companies in that fund.
And even then, nobody wants to see financials
moved up from 29 to 32 percent
of the portfolio. That’s a lot. You want to
see more diversity. But there’s a butterfly
effect: Once you adjust it, if it now is only
20 percent financials, but has 15 percent
materials and 10 percent energy, for example,
half the good things I mentioned
in the portfolio won’t exist.
September 9, 2010 – September 9, 2011
6.11%
ETFR: Have you owned EWM for a long
time?
Gordon: It’s been one of my holdings
since 2008. And last year, it was one of the
Competing Funds: N/A
Data as of: 09/09/11
Source: Bloomberg
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