U.S. Markets close in 5 hrs 46 mins

New Zealand Keeps Rate Unchanged: ETFs in Focus

Zacks Equity Research

New Zealand’s premier banking authority, Reserve Bank of New Zealand (RBNZ) left its official cash rate unchanged at 1.75% and predicts that no rate changes will be enacted in the near future.


RBNZ has stated that though global growth concerns have eased, massive political uncertainty still prevails. The Reserve Bank governor, Graeme Wheeler thus forecasts an accommodative policy for an extended period, stating that inflation will slow down. However, Wheeler also said that “Numerous uncertainties remain and policy may need to adjust accordingly”.


Annual CPI inflation reached 2.2% in the March 2017 quarter, bringing it to RBNZ’s target inflation range of 1%-3%. The bank attributes this increase to a slight recovery in fuel prices from 2016 lows and recent increases in food prices. However, the bank stated that as the effects of these stimulators disappear, inflation is expected to fall below 2%.


Moody’s affirmed New Zealand’s Aaa rating in March 2017, citing strong growth and economic resilience as factors that drove the decision. Though this presents a case for higher foreign fund flows and stronger New Zealand dollar exchange rate, the New Zealand dollar trade-weighted index (TWI) has depreciated 5% since the February Monetary Policy Statement.


Increased migration due to weaker job growth globally led to an increase in housing demand. However, tougher lending standards have weighed on house price inflation. Therefore, it is difficult to predict the extent of housing inflation, as it depends on how increased demand coupled with lower rates, interacts with stringent lending standards and construction capacity pressure.


The RBNZ forecasts CPI inflation to fall to 1.1% in March 2018 and TWI to decline to 75.3 in the same period from the current 77.9.


Let us now discuss the most popular New Zealand ETF, ENZL.


iShares MSCI New Zealand Capped ETF ENZL


This ETF provides exposure to equities of companies based out of New Zealand. The fund has AUM of $149.79 million and charges 48 basis points as fees per year. From a sector look, Utilities, Health Care, and Industrials take the top three spots, with 17.96%, 15.71%, and 14.23% allocation respectively (as of May 9, 2017). From an individual holding perspective, Spark New Zealand Ltd, Auckland International Airport Ltd, and Fletcher Building Limited are among the top holdings of the ETF, with 9.88%, 9.72%, and 8.62% allocation respectively (as of May 9, 2017). The fund has returned 4.54% in the past one year and 9.46% in the year-to-date timeframe (as of May 10, 2017). ENZL currently carries a Zacks ETF Rank #2 (Buy) with a Low risk outlook.


We will now compare the performance of ENZL to a broad Asia Pacific ETF, DVYA.


iShares Asia/Pacific Dividend ETF DVYA


This ETF aims to provide exposure to companies in Australia, Hong Kong, New Zealand, and Singapore. The fund has AUM of $45.36 million and charges 49 basis points as fees per year. It has 48.26% exposure to Australia, 27.74% to Hong Kong, 14.15% to New Zealand, and 9.5% to Singapore. From a sector look, Financials, Consumer Discretionary, and Telecommunications take the top three spots, with 22.77%, 20.65%, and 19.09% allocation respectively (as of May 9, 2017). From an individual holding perspective, Sky Network Television Ltd, Spark New Zealand Ltd, and Starhub Ltd are among the top holdings of the ETF, with 5.91%, 4.74%, and 4.20% allocation respectively (as of May 9, 2017). The fund has lost 0.38% in the past one year but gained 6.32% in the year-to-date timeframe (as of May 10, 2017). DVYA currently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Australia Business Conditions & Confidence High: ETFs to Buy).


Below is a chart comparing the year-to-date performance of the two funds:


 
Source: Yahoo Finance


Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>



 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ISHARS-MSCI NZ (ENZL): ETF Research Reports
 
ISHARS-A/P DV30 (DVYA): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report