The iShares MSCI France ETF: An Exceptional Fund
France has a diversified advanced economy. France has at least one world class competitor in almost every sector. The fund is comprehensive, balancing individual large caps with combined less weighted mid-caps. It simply cannot be helped. France has a certain ‘ambience’. Think of France and Gustave Eiffel’s ‘ Tour Eiffel’ immediately comes to mind. The imagination strolls around Champ de Mars or perhaps Champs-Élysées gloriously crowned by the Arc de Triomphe de l’Étoile . The mind’s eye bicycles along country roads winding along endless pastures, or through the narrow rue des villes médiévales . Then, of course, French epicure , le pain , la pâtisserie , le vin , le fromage and of course, le champagne . Lastly, where would we be without the fashion innovations originating from the very heart of France: Paris! Rarely does one think of France along with machinery, aircraft, electronics, high speed railways or industrial centers. However, France is one of the world’s leading advanced economies. Needless to say, agriculture is a large part of the French economy as are luxury goods, tourism and ‘specialty foods’. So then, is France in your future? Well, if you simply can’t get away for a few months for a leisurely, casual tour of France, perhaps you can start saving for a family excursion some time in the future! There aren’t too many ways to invest with an ‘all France ETF’, however. The best available way is found in BlackRock’s (NYSE: BLK ) portfolio of single country ETFs, namely, the iShares MSCI France ETF (NYSEARCA: EWQ ) . (click to enlarge) According to BlackRock, the fund is composed of “… large and mid-sized companies in France …” with exposure to “…85% of the French stock market…” The pie chart demonstrates the fund’s sector allocation. The table directly below the chart defines the MSCI (NYSE: MSCI ) France Index allocation. It’s clear that the fund and index are essentially allocated the same way. Both fund and index have the same number of holdings, with the exception of a small fund allocation in Euro or U.S. Dollar cash. The fund weights individual companies differently. For example, the index weights L’Air Liquide SA ( OTCPK:AIQUF ) slightly more than Danone (OTC: OTCQX:GPDNF ) and Societe Generale (OTC: OTCPK:SCGLF ) over Schneider Electric ( OTCPK:SBGSY ) . Data from BlackRock Financials 18.36% Industrials 18.28% Consumer Discretionary 17.43% Health Care 10.62% Consumer Staples 10.59% Energy 9.08% Information Technology 4.37% Materials 4.36% Utilities 3.67% Telecom Services 3.24% Data from Reuters, Yahoo Finance and multiple sources The heaviest weighting in the financial sector is BNP Paribas ( OTCQX:BNPQY ) , France’s largest domestic financial services company which extends throughout Belgium, France, Italy and Luxembourg. Its international services extends to 75 countries, globally. The distribution in this sector ‘ladders’ down without having any one company dominate. Further, the sector is diversified in insurance, investment banking and commercial real estate. There are also included a number of holdings of less than 1%; all such holdings total 3.21% of the sector. These include four REITS, insurance and reinsurance as well as two interesting investment companies. Wendel Investissement (OTC: OTCPK:WNDLF ) may best be described as an ‘activist investment company’, taking large majority ownerships in listed or unlisted companies along with activist board management. Eurazeo ( OTC:EUZOF ) is the merged Eurafrance and Azeo . It is essentially a diversified venture capital fund. Financials 18.41% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business BNP Paribas 5.083% BNPQY $72.503 2.76% 26.42 -3.36% 9.46 Bank services in Europe; retail personal finance, asset management, corporate finance; International AXA 4.227% OTCQX:AXAHY $67.20 3.88% 48.52 -0.74% 12.89 Insurance, life, property, casualty, asset management and banking; International Societe Generale 2.8165% SCGLF $38.116 2.73% 28.00 -5.06% 10.04 Retail, corporate and investment banking services; insurance, vehicle leasing; asset clearing, asset management; International Unibail Rodamco 2.033% OTC:UNBLF $24.779 4.11% 42.66 2.93% 11.56 REIT: Commercial real estate, development, construction and management; Shopping Centers, Convention; International Credit Agricole 1.040% OTCPK:CRARF $31.623 3.14% 28.34 -5.33% 9.25 Insurance and international retail banking services; corporate banking services; International Averages 3.04% $46.84 3.32% 34.788 -2.31% 10.64 Data from Reuters, Yahoo Finance and multiple sources Financial holdings less than 1% accounting for 3.2109% of Financials WENDEL 0.2785% KLEPIERRE REIT SA ( OTC:KLPEF ) 0.8122% EURAZEO SA 0.2204% SCOR SE 0.4904% FONCIERE DES REGIONS REIT SA ( OTC:GSEFF ) 0.2174% NATIXIS SA ( OTCPK:NTXFF ) 0.4648% ICADE REIT SA ( OTC:CDMGF ) 0.1936% GECINA ( OTC:GECFF ) 0.3478% CNP ASSURANCES ( OTC:CNPAF ) 0.1858% Data from Reuters, Yahoo Finance and multiple sources Industrials are also ‘well scaled’, starting with aerospace giant Airbus ( OTCPK:EADSF ) ( OTCPK:EADSY ) at 3.322%. The heavier weighted holdings include engineering and design firms, another aerospace company, Safran ( OTCPK:SAFRY ) and Schneider Electric specializing in energy application design and management. The sector includes 11 holdings of less than 1% each, totaling 4.1877%. Some of the more interesting companies include Bouygues SA ( OTCPK:BOUYY ) , specializing in media and telecom infrastructure construction and management; rail transportation specialist Alstom SA ( OTCPK:ALSMY ) and lastly, the famous maker of the most familiar ball point pen ever, SOCIETE BIC . Industrials 18.14% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business AirBus 3.322% EADSF $54.482 1.89% 34.02 7.23% 17.67 Premier aerospace commercial and defense; space launch vehicles and satellites (fmr: EADS NV) Schneider Electric 2.72% SBGSY $35.213 3.48% *42.91 9.57% 18.38 Energy management, automation, infrastructure, distribution, building automation and security, data centers Vinci 2.4915% OTCPK:VCISY $28.246 3.04% 46.57 4.47% 16.64 Engineering, design and construction, urban development, buildings, water, energy, and communications services Safran 1.820% SAFRY $29.269 1.82% *10.65 7.02% NA Aerospace, propulsion systems, solid fuel boosters, aircraft components, aircraft engines Compagnie de Saint-Gobain 1.709% OTCPK:CODYY $24.287 3.13% 90.14 1.67% 29.11 Materials and packaging; high-performance ceramics, plastics, abrasives; gypsum, piping; bottles and jars LeGrand 1.257% OTC:LGRDY $15.50 2.06 *46.53 4.69% **26.26 Electrical engineering and equipment manufacturing including data information networks Averages 2.22% $31.17 2.22% 45.137 5.78% 21.612 *percent of operating cash flow **trailing Data from Reuters, Yahoo and multiple sources Industrial holdings less than 1%, accounting for 4.1877% of Industrials ZODIAC AEROSPACE (OTC: OTC:ZODFF ) 0.4311% THALES SA ( OTCPK:THLEF ) 0.6457% SOCIETE BIC 0.3854% BOUYGUES SA 0.6201% EDENRED ( OTCPK:EDNMY ) 0.3333% ALSTOM SA 0.54% REXEL SA ( OTCPK:RXEEY ) 0.3322% GROUPE EUROTUNNEL ( OTCPK:GRPTY ) 0.481% BOLLORE SA ( OTC:BOLRF ) 0.3156% BUREAU VERITAS REGISTRE INTERNATIONAL ( OTC:BVRDF ) 0.4501% AEROPORTS DE PARIS ( OTC:AEOXF ) 0.2832% Data from Reuters, Yahoo Finance and multiple sources France is the home of many of the most well-known consumer discretionary brand names such as Moet Hennessy Louis Vuitton ( OTCPK:LVMHF ) or Kering ( OTC:PPRUF ) . The lesser weightings are no less “brand impressive”, such as Christian Dior (OTC: OTC:CHDRF ) . The interesting holdings include SODEXO SA ( OTC:SDXOF ) , providing ‘on-site’ services from housekeeping to prisoner rehab and anything in between; Ses Global SA ( OTCPK:SGBAF ), a Luxembourg based satellite communication and broadcasting service; and international media company Lagardere ( OTCPK:LGDDF ) . Consumer Discretionary 17.6851% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business LVMH Moet Hennessy Louis Vuitton 3.732% LVMHF $83.55 2.18% 17.14 12.43% 13.43 The brand name which speaks luxury. Champagne, cognac, fragrances, cosmetics, accessories, under a host of brand names Vivendi 2.025% OTCPK:VIVEF $28.95 10.14% *180.07 -17.95% **7.07 Media through subsidiaries Canal+, Universal Music, Vivendi Village Renault SA 1.553% OTC:RNSDF $29.65 2.08% ***20.54 4.02% 10.04 Auto, light truck manufacturer; financing, commercial services under Renault, Renault Samsung, Dacia Michelin 1.486% OTCPK:MGDDF $18.328 2.77% 41.88 5.72% 15.45 The brand name that speaks tires of every type as well as its coveted restaurant and hotel guides Kering 1.073% PPRUF $21.89 2.50% 40.40 -5.87% 22.25 Luxury goods manufacturer and retailer; apparel, accessories, fragrances, cosmetics Publicis Groupe 1.006% OTC:PBCBF $14.347 1.99% 32.25 9.91% 16.56 Communications platform management services: Digitas, Razorfish, and social network platforms Valeo 0.9636% OTCPK:VLEEY $11.885 1.60% ***26.86 11.16% 16.91 Auto replacements parts, driver assist systems, powertrains, comfort and convenience, lighting systems Averages 1.69% $29.80 3.32% 51.306 19.42% 14.53 *percent of operating cash flow **trailing; ***percent of EPS Data from Reuters, Yahoo Finance and multiple sources Consumer Discretionary holdings less than 1%, accounting for 5.846% of Consumer Discretionary holdings CHRISTIAN DIOR 0.8194% PEUGEOT SA ( OTCPK:PEUGF ) 0.6432% SODEXO SA 0.7723% EUTELSAT COMMUNICATIONS ( OTCPK:ETCMY ) 0.4267% SES SA 0.7717% NUMERICABLE-SFR ( OTCPK:NUMCF ) SA 0.3741% HERMES INTERNATIONAL ( OTCPK:HESAY ) 0.7692% LAGARDERE 0.2835% ACCOR SA ( OTCPK:ACRFF ) 0.7552% JC DECAUX SA ( OTCPK:JCDXF ) 0.2307% Data from Reuters, Yahoo Finance and multiple sources The main holdings of the Consumer Staple Sector seem to lean towards consumer discretionary, most notably in the inclusion of L’Oréal ( OTCPK:LRLCY ) at 3.589% of the fund. To be sure, it’s a global, well founded corporation whose primary business is the development, marketing and distribution of cosmetics which seems to put it in competition with the likes of Louis Vuitton held in the consumer discretionary sector. Similarly, Pernod Ricard ( OTCPK:PDRDY ) at 1.964% manufactures higher end distilled spirits. Casino Guichard Perrachon (OTC: OTC:CGUIF ) is a retail chain distributor, supermarkets, hypermarkets, discount and convenience stores; what one would consider a consumer staples company; and lastly, Remy Cointreau SA ( OTCPK:REMYY ) , also a manufacturer of wines and spirits. It seems that the difference between discretionary and staple products is a gray area. C’est la vie. Consumer Staples 10.5318% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Loreal 3.589% LRLCY $96.26 1.67% ***52.43 5.22% 30.36 R&D, marketing and distribution, ‘mass-market retail’ Danone 3.255% GPDNF $44.386 2.40% 112.94 7.13% 40.84 Holding company for Danone Group, Dairy, Yogurt, life stage nutrition; nutrition enhanced water Pernod Ricard 1.964% PDRDY $29.84 1.72% 55.49 3.86% 32.11 Wines and spirits under brands Absolut, Ricard Pastis, Chivas, Glenlivet, Beefeater; 16 in all; owns 5660 ha of vineyards Carrefour 1.332% OTCPK:CRRFY $22.08 2.50% 53.22 -2.53% 20.97 Hypermarkets, supermarkets, discount and convenience, cash & carry stores and e-commerce Averages 2.54% $48.14 2.07% 68.52 3.42% 31.07 ***percent of EPS Data from Reuters, Yahoo! and multiple sources Consumer Staple holdings less than 1%, accounting for 1.592% of Consumer Staple holdings Casino Guichard Perrachon 0.246% Remy Cointreau SA 0.1435% Data from Reuters, Yahoo Finance and multiple sources The Health Care holdings are dominated by the world renowned pharmaceutical Sanofi (NYSE: SNY ) at 8.33% of the fund’s 10.4613% combined Health Care holdings. Sanofi is what one might expect; however, the other holding is a bit more interesting. Essilor International ( OTC:ESLOF ) is a developer and manufacturer of Ophthalmology and Optometry medical equipment as well as corrective lenses. Health Care 10.4613% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Sanofi 8.330% SNY $122.23 3.71% 75.73 1.78% 21.65 R&D, manufacture and marketing of vaccines, pharmaceuticals, animal health Essilor International 2.132% ESLOF $27.138 0.87% 34.98 11.65% 40.61 Ophthalmology and Optometry medical equipment development through manufacturing Averages 5.23% $74.68 2.29% 55.36 6.72% 31.13 So far, in each of the above sectors, most of the holdings were greater than 1 percent. In the remaining sectors, it is quite the opposite, hence all are included. For example, the energy sector is dominated by the global energy giant Total (NYSE: TOT ) at 8.536% of the total 8.974% of that sector. The remaining 0.438% is weighted by Technip ( OTCQX:TKPPY ), providing project management, consultation and construction in the energy industry. Energy 8.974% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Total 8.536% TOT $115.910 5.83% 195.03 6.33% 32.27 Wellhead to final point of sale hydrocarbons, refined petroleum oils, gases and chemicals Technip 0.438% TKPPY $5.844 4.24 185.6 9.31% 337.73 Engineering, construction and management for on/off shore energy projects Averages 4.49% $60.88 5.04 190.315% 7.82% 185.00 Information Technology is pretty well laddered with the major French IT companies, Cap Gemini ( OTCPK:CAPMF ) and Alcatel-Lucent (NYSE: ALU ) . Just one note: Ingenico Group ( OTC:INGIF ) is formerly Compagnie Industrielle et Financiere d’Ingenierie Ingenico SA ; the company provides secure global digital-mobile-internet transaction solutions including software and hardware. In October, it was announced that Ingenico was collaborating with Intel (NASDAQ: INTC ) in the field of secure retail transaction solutions. IT 4.5651% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Cap Gemini 1.241% CAPMF $16.066 1.40% 31.16 4.78% 23.35 IT consulting and professional staffing Alcatel Lucent 0.929% ALU $11.444 0.00 0.00 -2.35% 15.46 (est) Cloud, ultra and Broadband network equipment and services Dassault Systems 0.8425% OTCPK:DASTY $20.732 0.58% 29.22 12.89% 50.99 Software application solutions, services; CAD and design software Atos 0.5964% OTCPK:AEXAF $8.684 1.04% ***25.89 12.04 25.17 IT management, services and consulting CIE Industrielle Financiere (Ingenico) 0.5761% INGIF $7.716 0.84 ***23.86 18.06% 33.24 Secure financial transaction systems STMicroelectronics 0.3808% STM $7.247 5.43% 180.69 27.23% 44.50 Semiconductor manufacturer Averages 0.76% $11.98 1.50% 48.47 12.01% 32.118 ***percent of EPS Data from Reuters, Yahoo! and multiple sources The Materials sector has an average weighting of just over 1% and all the better. Over half of the weighting is in the mining and minerals sector through ArcelorMittal (NYSE: MT ) and Imerys ( OTC:IMYSF ) both under pressure from the collapse in commodity prices. Materials 4.1634% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business L’Air Liquide SA 3.208% AIQUF $39.186 2.42% 51.45 5.10% 20.88 Gasses technology for industry such as beverage, food, pharmaceuticals Arkema 0.3958% OTC:ARKAF $5.31 2.76% 45.17 6.02% 18.73 Industrial chemical packaging, automotive, electronics, edibles and pharmaceuticals Arcelormittal 0.3596% MT $7.143 4.35% NA 5.38% 17.73 (NYSE: AVG ) Mining and steel manufacturing in Europe, Brazil, Africa and trade regions NAFTA and CIS Imerys 0.1998% IMYSF $5.386 2.62% ***45.46 5.86 17.19 Minerals extraction and processing for the production of porcelain, ceramics, tiling, bricks, pigments, paper, graphite and others Averages 1.04% $14.26 3.04% 47.36 5.59% 18.64 ***percent of EPS Data from Reuters, Yahoo Finance and multiple sources The average Utility holding is less than 1% but the yield is a noticeable 5.60%, albeit with a greater than 100% average payout ratio . Engie ( OTCPK:ENGIY ) and Veolia Environnement ( OTCPK:VEOEY ) are international and manage vital service utilities: water, sewage and electric. Veolia has offices in the Americas, Middle East, North Africa and Asia. Utilities 3.6889% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Engie 2.0591% ENGIY $42.00 6.27% 259.55 -1.34% 45.80 Natural gas and electricity; Europe, Americas, U.K., Turkey, Middle East, Asia and Africa Veolia Environnement 0.8772% VEOEY $13.289 3.17 99.60 -10.37% 31.97 Water treatment, distribution and recycling; wastewater, sanitations services; International Suez Environnement 0.4642% OTCPK:SZEVY $10.41 3.69% 158.54 3.10% 42.87 Water management, , distribution and recycling; wastewater collection/recovery EDF 0.2884% $26.78 9.27 ***39.31 4.26% 9.17 Electric utility; generating with nuclear, geothermal, hydro and other renewables Averages 0.92% $23.12 5.60% 139.25 -1.09% 32.45 ***percent of EPS Data from Reuters, Yahoo Finance and multiple sources The last sector, Telecom Services, is dominated by Orange (NYSE: ORAN ) , formally France Telecom . Just last week it was announced that Orange was ‘in talks’ to purchase Bouygues a diversified telecom and media company, including engineering, construction and management services mainly for public works projects. Telecom Services 3.2402% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Orange 2.7557% ORAN $48.106 4.02% 110.24 -2.53% 43.34 Multi-platform telecom services; internet, mobile, fixed line; submarine/international cable maintenance Iliad 0.4845% OTC:ILIAF $13.170 0.19% 7.57 16.35% 40.73 Telecom holding company with over 14 subsidiaries; multiplatform services Averages 1.62% $30.64 2.11% 58.91 6.91% 42.035 Data from Reuters, Yahoo Finance and multiple sources As for the fund itself, it first listed on March 12, 1996, hence it is well established and now holds $399,541,982 in assets. The expense ratio is 0.48% and its current share price is at a premium to NAV of 0.44%. The fund is liquid, with a 20 average daily volume of about 137,500 share. The fund moves pretty much with the market, having a beta of 1.09, although its standard deviation from its average is nearly 16%, meaning it trades in a range of ±$4.00 around its 3-year average. One last word and it’s important. There’s a bit of currency risk as the ECB continues to weaken the Euro in order to stimulate the EU economy as a whole. However, this is a ‘two sided coin’. On one hand, true, distributions may decline slightly through currency translation should the Euro weaken significantly from its current $1.08 USD per Euro. On the other side of the coin is that French exports of goods and services become less expensive for the importers. Hence, many of those French big caps with global reach will have a price advantage, not to mention other advantages; for example, luxury items, and of course, French Champagnes. Hence, the investor should be aware of the currency risk; however, over the very long term, any near-term weakening of the Euro may end up being an exceptional advantage. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.