We executed two trades recently and the following is the internal writeup for each;
Today we bought the iShares New Zealand ETF for most large accounts and RRGR (check your accounts to see who participated). We owned New Zealand many years ago for its historically low volatility and historically high yield. Those attributes still exist and so this fund will likely have similar attributes to the utilities sector which reduced late last year.
New Zealand fared much better during the financial crisis and the central bank, the Reserve bank of NZ, has not needed to employ desperate unprecedented interest rate policy to spur economic activity.
The make up of the fund skews defensive except for Fletcher Building which is the largest holding in the fund for now but this stock will likely benefit from the rebuilding of Christchurch after the earthquake. I was in Christchurch in February and the downtown was uninhabitable rubble.
Another development under the hood of the fund is that recently dairy co-op Fonterra has gone public with an IPO late last year. The stock should be included soon and would have a large weight in the fund which capitalizes on NZ’s free trade agreement with China; a lot of dairy products go from NZ to China.
Overnight it was reported that Apple has significantly reduced its orders for iPhone 5 components. This combined with a general lack of good news for several months and an obviously deteriorating chart pattern made the stock a sale. This turned out to be one we got wrong which has happened before and will happen again.
The issue then becomes the ability to recognize when we are wrong and mitigate the potential consequence. The decline from our purchase price to our sell price was just under 12% which works out to just over a 0.20% drag on the portfolio. While it would have been better to have not been wrong with this, the consequence to clients is negligible.