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Ivy Portfolio November Update

The Ivy Portfolio spreadsheets track the 10-month moving average signals for two portfolios listed in Mebane Faber’s book ” The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets “. Faber discusses 5-, 10-, and 20-security portfolios that have trading signals based on long-term moving averages. The Ivy Portfolio spreadsheet tracks both the 5- and 10-ETF Portfolios listed in Faber’s book. When a security is trading below its 10-month simple moving average, the position is listed as “Cash”. When the security is trading above its 10-month simple moving average, the positions is listed as “Invested”. The spreadsheet’s signals update once daily (typically in the late evening), using dividend/split adjusted closing price from Yahoo Finance. The 10-month simple moving average is based on the most recent 10 months, including the current month’s most recent daily closing price. Even though the signals update daily, it is not an endorsement to check signals daily or trade based on daily updates. It simply gives the spreadsheet more versatility for users to check at his or her leisure. The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10-month simple moving average, using both adjusted and unadjusted data. If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data, you will see differences in the percent an ETF is above/below the 10-month SMA. This could also potentially impact whether an ETF is above or below its 10-month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach. My preference is to use adjusted data when evaluating signals. The current signals based on October 30th’s adjusted closing prices are below. This month, the Vanguard Total Bond Market ETF (NYSEARCA: BND ), the Vanguard Total Stock Market ETF (NYSEARCA: VTI ) and the Vanguard REIT Index ETF (NYSEARCA: VNQ ) are above their respective moving averages, and the balance of the ETFs, the Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ), the Vanguard Small Cap ETF (NYSEARCA: VB ), the SPDR DJ International Real Estate ETF (NYSEARCA: RWX ), the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ), the PowerShares DB Commodity Index Tracking ETF (NYSEARCA: DBC ), the iShares S&P GSCI Commodity-Indexed Trust ETF (NYSEARCA: GSG ) and the iShares TIPS Bond ETF (NYSEARCA: TIP ) , are below their respective 10-month moving averages. The spreadsheet also provides quarterly, half-year, and yearly return data, courtesy of Finviz . The return data is useful for those interested in overlaying a momentum strategy with the 10-month SMA strategy: (click to enlarge) I also provide a “Commission-Free” Ivy Portfolio spreadsheet as an added bonus. This document tracks the 10-month moving averages for four different portfolios designed for TD Ameritrade, Fidelity, Charles Schwab, and Vanguard commission-free ETF offers. Not all ETFs in each portfolio are commission-free, as each broker limits the selection of commission-free ETFs, and viable ETFs may not exist in each asset class. Other restrictions and limitations may apply, depending on each broker. Below are the 10-month moving average signals (using adjusted price data) for the commission-free portfolios: (click to enlarge) (click to enlarge) Disclosure: None.

DON: A Typical Mid-Cap ETF Presented As A Dividend ETF

Summary DON offers a dividend yield of 2.45%. It just isn’t high enough to make me think of this as a compelling dividend investment. The individual company allocations are reasonable for preventing diversifiable risk. The expense ratio is simply too high for my tastes. The sector allocation strikes me as being too volatile. Looking at historical performance confirms the higher volatility of the fund. It delivered great performance, but it was compensation for risk. The WisdomTree MidCap Dividend ETF (NYSEARCA: DON ) is a weird fund that doesn’t quite seem to go together for me. I’ve seen quite a few good dividend ETFs lately and started to wonder if my standards were simply slipping. It seems I was just due for finding one that didn’t work for me. Expenses The expense ratio is a .38%. This is quite a bit too high for my tastes. Dividend Yield The dividend yield is currently running 2.45%. Is that really a dividend ETF? I’m not convinced so far. Am I just having a grumpy night? Who knows, but I’m expecting dividend yields to exceed 2.5% even in this low interest rate environment. Some of my ETF holdings have yields over 2.5% without any emphasis on the dividend yield. Holdings I put grabbed the following chart to demonstrate the weight of the top 10 holdings: (click to enlarge) The thing I do love about these allocations are that the diversification across individual companies is excellent. There are very few companies with a weight higher than 1%, so any scandal event would be unlikely to cost an investor a substantial portion of their portfolio. I do like seeing Coach (NYSE: COH ) as a top holding and I certainly don’t mind their dividend yield being greater than 4%. The question may be how many low dividend holdings are included in the fund to drive the fund yield below 2.5%? Mattel, Inc. (NASDAQ: MAT ) has a dividend yield greater than 6%. I’ll have to admit that when the dividend yield gets that high I have to start questioning the sustainability of the dividend. I prefer dividend growth to always be positive. Negative growth just doesn’t offer the same appeal. Darden Restaurants (NYSE: DRI ) is another solid yielding stock at 3.55% and they recently delivered a solid earnings beat from their “OG TO GO” program which allows customers to pick up food from Olive Garden to go. The program is excellent because it allows the company to expand the volume of sales without requiring substantial capital expenditures in new seating areas. Lately quite a few of the restaurants I cover have been trying to figure out how to deal with increased traffic because they just don’t have enough seating room. Of course, it is possible to handle that problem by raising prices but the competitive nature of the casual restaurant industry is incredibly fierce to companies that opt to give customers less value for their money. Sectors (click to enlarge) I don’t like it. That’s got to be one of the most frank assessments you’ve heard on sector allocations and it is precisely accurate. I really don’t like this sector allocation whatsoever for a dividend ETF. There is a very heavy emphasis on financials and consumer discretionary. The allocation to utilities is nice at 13%, and I don’t mind industrials at 14.04%, but I’d rather see financials and consumer discretionary at the bottom of the list. I’d like to see consumer staples and health care with heavy allocations. Neither of them got the nod. There is nothing wrong with this sector allocation for a typical mid-cap ETF , but I’d rather see it named along those lines. Generally speaking I find the mid-cap space to be more volatile than the large cap space and I’d rather feel that the holdings within that part of the market were going to be safer holdings. That makes me double down on the importance of using heavy allocations to consumer staples. This portfolio is designed in such a manner that makes it simply feel too risky for investors that are focused on dividends and growing their portfolio. I wouldn’t mind it as a simple “mid-cap” ETF, but it doesn’t work as a dividend ETF for me. When I ran a regression on the returns for DON with the returns for the S&P 500 as measured by the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ), with a sample period going back to June 2006, the results were great for returns but bad for risk. DON returned a very impressive 119% in that period while SPY returned 101%. Clearly that strong performance is great, but the max drawdown was almost 62% compared to 55% for SPY and the annualized volatility for DON was higher. Simply put, I believe the excess returns here are strongly correlated to the excess risk. There is nothing wrong with a higher risk portfolio, but it doesn’t match the typical expectation of an investor hoping to drop their cash in and get a fairly safe and growing stream of dividend income. Conclusion This is a fine mid-cap ETF but it doesn’t make sense as a dividend ETF. The yield, the sector allocations, and the risk level demonstrated over the last 9 years or so are indicative of a more typical mid-cap ETF that is appropriate for aggressive investors with very bullish expectations about the future path of the economy. This is the kind of allocation I would be interested in buying when the market had crashed and already lost 40% of the total market value. If shares get that depressed, then this allocation would be much more acceptable for trying to catch the ride back up in equity prices. In my opinion, our market would have to fall quite a ways before I would want to start grabbing up those highly aggressive allocations. I can’t argue with the past returns, but the risk just doesn’t match up with my desires.

The iShares MSCI Denmark Capped ETF: Happy In EDEN

Denmark’s Krone is considered a ‘safe-haven’ currency. Although a small economy, Denmark is home to several world class companies. The well-established international companies have yet to reach full dividend return potential. Historians often classify long stretches of time as ‘an age’. For example, ‘Ice Age’, ‘Stone Age’, ‘Bronze Age’ and ‘Industrial Age’. Today, it’s as though we’re living in the ‘Information Age’. There seems to be no end to the collection and analyzation of data in every imaginable way. One such collation of data stands out: the World Happiness Report . It’s a landmark survey of the state of national happiness. On a scale of 0 to 10, four countries are virtually tied for first place with an average score between 7.5 and 7.6. They are Switzerland, Iceland, Denmark and Norway. So if your portfolio has you feeling a bit glum, it just so happens that there’s a way to share in the happiness. BlackRock’s iShares MSCI Denmark Capped ETF (BATS: EDEN ), just might cheer you up! Before getting a closer look at Denmark and the fund, it best to make clear why the fund is called ‘capped’. It’s simply means that the fund complies with specific IRS requirements which; …limits the weight of any single component to a maximum of 25% of the Underlying Index. Additionally, the sum of components that individually constitute more than 5% of the weight of the Underlying Index cannot exceed a maximum of 50% of the weight of the Underlying Index in the aggregate… Also, the fund is designed to emulate the Morgan Stanley Capital International [MSCI] Danish Stock Exchange Index, is 99.58% invested in Danish listed companies and is passively managed. (click to enlarge) According to the Official Website of Denmark , the northern European nation has some very unique characteristics. For instance, aside from the mainland peninsula (called Jutland ), Denmark includes 406 islands totaling over 4544 miles of coastline. Its geographic mainland is nearly flat, the highest point being a mere 558 feet above sea level. Surprisingly, the Kingdom of Denmark spans a bit further than one might expect. Greenland , although geographically a part of North America belongs to the Kingdom of Denmark, as well as the Faroe Islands midway between Scotland and Iceland. (These outlying regions of Denmark do have completely autonomous governments.) Closer to home, Denmark’s government is a constitutional monarchy, parliamentary in structure and almost always governed by minority consensus. In fact, no single party has held a majority in the Danish Parliament for well over 100 years! Denmark has been a member of the European Union since 1973. Although the Danes still use the traditional Krone, Denmark participates in the European Union’s ‘Exchange Rate Mechanism II’. ERMII requires that EU members who wish to transition to the Euro, maintain their legacy currency within a fixed band, ±15%, of a central rate. Danmark’s Nationalbank , the central bank of Denmark, has gone to great lengths to keep the Krone within an even narrower ±2.5% range. Because of Denmark’s well managed and stable economy the Danish Krone is considered one of the world’s ‘safe haven’ currencies. So much so, the central bank has kept its base deposit rates below zero to discourage ‘a flood’ of capital inflows which would strengthen the Krone and depress Denmark’s export economy. The point being is that Denmark’s reputation as a financial safe haven is on par with that of Switzerland, or the U.K. or even the U.S. However, if one were trying to think of a single global export product that would immediately bring Denmark to mind, nothing particularly stands out. So then, what makes the Danish economy special? Of the 28 nation European Union, Danes are 6th in per capita GDP; have a real GDP growth rate of 1.1%, below the EU-28 average of 1.4%; Government debt of about 45% of GDP, well below the EU-28 average; an inflation rate half of the EU-28 and a labor productivity well above the EU 28 average. It’s also important to note that although taxes are well above the EU-28 average, so too are government expenditures on social services. In relation to the EU, Denmark has above average wealth, a productive workforce and a high standard of living underwritten by taxes supporting an extensive social services network, including tax supported healthcare and education. Almost 80% of Denmark’s total exports are destined for its top 20 export partners. Chief among those destinations are Denmark’s fellow European Union member nations. Data from Observatory of Economic Complexity It’s similar for import originations; the Lion’s share of imports originating from EU partners. Data from Observatory of Economic Complexity Hence, it seems that Denmark is an integral part of the European Union’s economy and on track towards becoming a Eurozone member. In order to best understand what drives the economy, it’s best to examine the holdings of the iShares Denmark Capped fund, starting with the way iShares allocates investment capital among the various market sectors. Data from iShares The non-cyclical sectors, Health Care and Consumer Staples, tally up to about 41%; the cyclicals, Financials, Materials and Consumer Discretionary compose about 31% and the cyclically sensitive sectors, Industrials, Telecom and IT comprise about 28% of the fund. Lastly, the cash holding are mostly U.S. Dollars and a small portion of Danish Krone. The fund itself is not large with a mere 39 holdings as of the end of October. Hence it isn’t too much trouble to take a look at the holdings of each sector, examining a few common metrics. The fund’s Health Care sector holds 9 companies, most notably the global pharmaceutical giant Novo Nordisk (NYSE: NVO ) tipping the scale at 22.0906% of the fund’s total holding. However, Coloplast ( CLPBY), a provider of specialized gastro-intestinal consumer and hospital products and biotech Genmab ( OTCPK:GMXAY ) are lesser known but top of the line as far as Health Care companies go. In general, the fund’s Health Care sector pulls together a respectable lineup, although the sector’s average dividend yield is a disappointing 0.639% with, however, a dependable average payout ratio of almost 25%. These are solid companies with good fundaments, with the potential for higher distributions. Health Care 34.80% Symbol Fund Weighting Market Cap ( USD Billions ) Yield Payout Ratio Price/ Earnings Price/ Book Beta Primary Business Novo Nordisk NVO 22.0906% $109.95 1.43% 41.30% 30.08 23.90 0.87 Pharmaceuticals Coloplast CLPBY 3.5638% $16.5403 2.44% 106.77% 32.90 17.92 0.50 Personal Health Care Products and Service Genmab GMXAY 2.7752% $5.870 0.00% 0.00% 84.98 14.20 0.99 Co-Development Biotech, Antibody Therapeutics with Glaxo (NYSE: GSK ), Roche (OTCQX: RHHBF ) GN Store Nord OTCPK:GNNDY 1.6894% $3.141 0.69% 21.76% 30.33 3.64 1.04 Hearing Aids, Hands Free Communications; Beltone and ReSound Brands Bavarian Nordic OTCPK:BVNRY 1.3398% $1.131 0.00% 0.00% 40.91 5.67 1.53 Biotech Vaccines for Cancer and Infectious Disease William Demant Holdings OTC:WILLF 1.2814% $4.823 0.00% 0.00% 24.03 5.53 0.74 Holding Company for Hearing Aid Device Manufactures; Diagnostic Instruments ALK-Abello OTCPK:AKABY 0.729% $1.019 0.67% 27.57% 39.86 2.92 0.32 Allergy Treatment, Prevention, Diagnosis Zealand Pharma OTCPK:ZLDPF 0.6916% $0.533 0.00 0.00% NA 21.64 1.01 Biopharmaceuticals Peptides and Cardio-Metabolic AMBU Copenhagen: AMBUb 0.6397% $1.101 0.52% 26.32% 51.58 8.85 0.05 Life Support Devices, Anesthesia Equipment, Monitoring Devices Data from Reuters The Financial Sector is in large part the international Danske Bank ( OTCPK:DNSKY ) at 7.8049% of the fund’s Financial sector and is by far Denmark’s largest bank with a respectable market cap of $27.785 billion in U.S. Dollars. The sector’s average dividend is a reasonable at 2.04% and the average payout ratio of the five dividend paying companies is well sustainable at approximately 43.87%. Financials 15.73% Symbol Fund Weighting Market Cap ( USD Billions ) Yield Payout Ratio Price/ Earnings Price/ Book Beta Primary Business Danske Bank DNSKY 7.8049% $27.785 2.95% 33.55% 30.37 1.24 1.22 International; Nordic Regional Jyske Bank OTC:JYSKY 1.8923% $4.648 0.00% 0.00% 18.33 1.08 1.09 International; North Europe TopDanmark OTCPK:TPDKY 1.5684% $2.801 0.00% 0.00% 15.19 3.62 0.25 Insurance and Pension Funds Sydbank OTCPK:SYANY 1.5644% $2.447 3.17% 47.12% of cash flow 15.28 1.46 0.77 Denmark and Germany TRYG OTC:TGVSF 1.3619% $5.218 4.43% 93.57% 18.77 3.76 0.19 Nordic region Insurance ALM Brand Copenhagen: ALMB 0.836 $0.986 1.30% 22.14 16.61 1.30 1.25 Insurance and Financial Services Spar Nord Bank Copenhagen: SPNO 0.6974% $1.205 2.46% 22.96% of cash flow 10.08 1.13 0.84 Retail and Small Business Data from Reuters The fund’s Industrial Sector accounts for 11 of the fund’s holdings, led by the well know Vestas Wind Systems ( OTCPK:VWSYF ) at almost 5% of the fund. It’s worth noting here that Denmark has an average wind speed of nearly 17 miles per hour; well suited for wind energy generation. Second to Vestas in fund industrial weightings is the shipping giant Moller-Maersk [Copenhagen: MAERSKb] at 4.4241% of B shares and 2.451% of the [Copenhagen: MAERSKa] of class A shares. The sector’s average return, when including the oversized Moller-Maersk 19% class A share dividend, is just over 3% and without it, its 1.43%. Denmark has ample access to the sea and as one might expect, four of its industrial holdings are international freight shipping and transportation companies. Industrials 24.24% Symbol Fund Weighting Market Cap ( USD Billions ) Yield Payout Ratio Price/ Earnings Price/ Book Beta Primary Business Vestas Wind Systems VWSYF 4.9908% $13.130 0.98% 24.32% 24.75 4.56 1.03 Wind Energy Systems, Service and Finance A P Moller Maersk B shares Copenhagen: MAERSKb 4.4241% $31.31 3.00% 16.65% of Cash Flow per Share 19.15 1.04 NA Marine Shipping DSV OTCPK:DSDVY 3.8309% $7.238 0.57% 15.18% 25.75 7.41 0.67 Air, Sea, Land Freight Transportation ISS OTCPK:ISSJY 2.4673% $6.541 2.05 0.00% 19.48 3.26 NA Building/ Factory Maintenance A P Moller Maersk A shares Copenhagen: MAERSKa 2.451% $31.31 19.71% 25.50% 7.57 0.84 1.13 Marine Shipping DFDS Copenhagen: DFDS 1.3245% $1.871 1.75% 38.08% 21.19 2.05 0.32 Shipping and Logistics Flsmidth & CO OTCPK:FLIDY 1.0991% $1.923 3.54% 56.70% 15.30 1.52 1.36 Cement & Mineral Processing Machinery NKT Holdings OTC:NRKBF 1.0559% $1.325 1.08% 311.73% 285.23 1.50 1.53 Industrial Power Cables Rockwool International OTC:RKWBF 0.955% $3.424 1.07% 27.46% 28.09 2.25 0.92 Manufacturer of Stone Wool Insulation Per Aarsleff Copenhagen: PAALB 0.6813% $0.708 0.67% 9.02% 13.35 2.13 0.56 Construction, Pilings and Pipe Solar Copenhagen: SOLARb 0.5605% $0.423 1.72% NA NA 1.78 0.87 HVAC Equipment and Supplies Norden OTC:DPBSF 0.3984% $0.843 0.00% 0.00% NA 0.66 0.69 Shipping Dry Cargo/ Tankers Data from Reuters Denmark’s economy seems to lean towards Health Care, Biotech, Chemicals and Pharmaceuticals in general. So it’s no surprise to find to that the two holdings in the materials sector are ‘bio-materials’ manufacturers. It’s worth a quick mention since they are interesting companies. Novozymes ( OTCPK:NVZMY ) manufactures industrial enzymes, microorganisms ingredients and biopharmaceutical ingredients. The applications range from household cleaning products, food and beverage ingredients, agriculture, feed products, and aquaculture feed products. Chr Hansen ( OTCPK:CRTSF ) is a holding company for its ‘Cultures and Enzymes’, Health and Nutrition and Natural Colors divisions. The sector average dividend yield is 1.855% with an average payout ratio of 40.25%. Materials 7.67% Symbol Fund Weighting Market Cap ( USD Billions ) Yield Payout Ratio Price/ Earnings Price/ Book Beta Primary Business Novozymes NVZMY 4.7194% $12.043 0.95% 33.83 35.71 8.63 0.63 Biotech Chemicals, Enzymes Hansen Holdings CRTSF 2.9513% $7.939 2.76% 50.46 44.79 11.85 0.36 Bioscience: Food, Ag and Pharma The Consumer Discretionary has what might be expected, with one exception: the world renowned speaker and sound reproduction equipment manufacture Bang & Olufsen ( OTCPK:BGOUF ) . Bang and Olufsen sound system and components have long been ‘top-of-the-line’ equipment for home, auto and professional entertainment consumers. For example, these are the sound systems used by Mercedes-Benz ( OTCPK:DDAIY ) , Aston Martin (owned by Ford (NYSE: F )) , Audi ( OTCPK:AUDVF ) and BMW ( OTCPK:BAMXY ) . Perhaps a secret to their success is quality over quantity. The company’s market cap is less than one-quarter billion U.S. Dollars and there’s no dividend. The entire sector’s average dividend is a bit over 2.00% and average payout ratio for the three other holdings is a bit over a well sustainable 48%. Consumer Discretionary 7.38% Symbol Fund Weighting Market Cap ( USD Billions ) Yield Payout Ratio Price/ Earnings Price/ Book Beta Primary Business Pandora OTCPK:PNDZF 5.7066% $14.135 1.15% 35.97 31.91 16.05 2.10 Accessories and Jewelry Matas OTC:MAASF 0.6221% $0.731 4.72% 65.86 14.87 1.99 NA Personal Care, Cosmetics, Vitamins IC GROUP Copenhagen: IC 0.5752% $0.470 2.14% 44.16 20.00 3.51 0.90 Clothing and Sportswear Bang & Olufsen BGOUF 0.4804 $0.285 0.00 0.00 NA 1.05 1.00 Multimedia, Sound Systems Data from Reuters According the official website of Denmark , beer has been part of Danish culture for more than 5000 years. Denmark is proud of its brewing industry. The first brewing guild was established in the 16 century. It is estimated that there are over 200 ‘microbreweries’ as well as world renowned brands such as Tuborg and Carlsberg ( CAGBY) . So again, it’s no surprise that two of the three Consumer Staples are breweries, Carlsberg and Royal Unibrew [Copenhagen: RBREW] both having a global reach for beer as well as soft drinks. The third holding is Schouw ( OTC:SUWCF ) , manufacturer of casual and active wear. The average dividend for Consumer Staples is 2.13% with an approximate payout ratio of 37%. Consumer Staples 6.15% Symbol Fund Weighting Market Cap ( USD Billions ) Yield Payout Ratio Price/ Earnings Price/ Book Beta Primary Business Carlsberg CAGBY 3.8326% $12.738 1.62% 15.98% of Cash Flow 22.53 1.49 1.16 Beer & Soft Drinks Royal Unibrew Copenhagen: RBREW 1.4151 $2.2 2.53% 55.48 21.93 5.40 0.59 Beer & Soft Drinks Schouw & Co. SUWCF 0.9048% $1.337 2.25% 39.42 16.28 1.32 0.70 Diversified Consumer Non-Cyclical Data from Reuters The two remaining sectors include Telecom holding TDC ( OTC:TDCAY ) , a diversified communications and content provider and IT holding Simcorp ( OTC:SICRY ) , specializing in financial industry software solutions. Telecom 2.00% and IT 1.61% Symbol Fund Weighting Market Cap ( USD Billions ) Yield Payout Ratio Price/ Earnings Price/ Book Beta Primary Business TDC (Telecom) TDCAY 2.0068% $4.264 5.63% 11.14% of Cash Flow 12.98 1.12 0.51 Communications and Entertainment Simcorp (IT) SICRY 1.605% $2.038 1.35% 53.84 40.11 27.85 0.57 Financial Industry Software Data from Reuters As for the fund itself, it has been listed since January 2012 and currently trades at a discount of -0.20% to NAV. The fund has a P/E of 23.47 and a price to book multiple of 2.89. The annualized distribution is 3.09% and the trailing 12 month yield is 1.54%. The shares are lightly traded with a 20 day average volume of just over 17,000 shares per day. Since inception the fund has returned 22.64% and over the past 52 weeks 8.83%. (click to enlarge) Denmark is a small country with a relatively small industry. The country is currently ranked 139th by the U.S. EIA and does have a small but active refining industry, hence the potential for Denmark to expand its industrial base sometime in the future. Also note that with untapped oil reserves together with its expanding reliance on wind energy and a decades long national energy conservation program makes Denmark virtually energy independent. Lastly, Danmark’s National Bank has gone to extraordinary efforts to keep its currency on track for Euro adoption. For a nation as small and productive as Denmark, being an integral part of the larger Eurozone economy will be very beneficial. The ETF has had a nice run since inception. The investor might expect some kind of retracement should the European economy slow further. That would be a buying opportunity. For investors with a fair amount of patience, who seek capital appreciation as well as the high potential for increasing sustainable dividend returns and single country focus should make the investors who invest in ‘EDEN’, happy in the long run.