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New Zealand ETFs in Focus after Election Stalemate

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New Zealand’s prime minister Bill English’s National Party won 46% votes compared with Jacinda Ardern’s Labour winning 35.8%. However,  Bill English will need to form a coalition with the New Zealand First in order to be able to govern.


National got 58 seats while Labour secured 45. Both parties fell short of the 61-seat requirement to attain majority. Moreover, if Labour wants a ruling majority, she will have to form a three-way coalition involving the Green party.


What’s in Store?


The future of the New Zealand government is now dependent on Winston Peters, leader of New Zealand First, which secured 9 seats. He is expected to get the better end of the bargain to extend his support to either of the parties, as Ardern refuses to concede defeat.


Moreover, these negotiations could take weeks to materialize. This was not comforting to investors as the markets do not like uncertainty. As a result, the New Zealand dollar declined. However, the relative majority of the National party is a positive for investors, as they expect stability in a National-led government.


Investors are concerned about Labour’s hard-line stance on immigration, as it could negatively impact growth. Moreover, National’s track of leading the country to positive economic growth in their years of power is comforting for investors.


Although National definitely has a greater chance of securing a coalition government, the possibility of Labour attaining victory by forming a three-way coalition has not been completely ruled out. A coalition with New Zealand First and the Greens would lead to the oustering of Bill English from office.


However, a final tally of votes including special votes will be released on Oct 7. These votes comprise 15% of the total count and include overseas votes.


Let us now discuss the most popular New Zealand ETF, ENZL (see all Asia-Pacific (Developed) ETFs here).

iShares MSCI New Zealand Capped ETF (ENZL - Free Report)

This ETF provides exposure to equities of companies based out of New Zealand. The fund has AUM of $172.9 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 18.5%, 17.8% and 13.6% allocation, respectively (as of Sep 22, 2017). From an individual holding perspective, Fisher & Paykel Healthcare Corp, Spark New Zealand Ltd and Auckland International Airport Ltd are among the top holdings of the ETF, with 10.3%, 9.8% and 8.8% allocation, respectively (as of Sep 22, 2017). The fund has returned 3.3% in a year and 19.2% year to date (as of Sep 22, 2017). ENZL currently carries a Zacks ETF Rank #3 (Hold) 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 - Free Report)


This ETF aims to provide exposure to companies in Australia, Hong Kong, New Zealand, and Singapore. The fund has AUM of $42.3 million and charges 49 basis points as fees per year. It has 49.6% exposure to Australia, 28.2% to Hong Kong, 12.2% to New Zealand and 9.1% to Singapore (as of Sep 22, 2017). From a sector look, Financials, Consumer Discretionary and Telecommunications take the top three spots, with 23.0%, 18.6% and 18.2% allocation, respectively (as of Sep 22, 2017). From an individual holding perspective, Spark New Zealand Ltd, Sky Network Television Ltd and Giordano International Ltd are among the top holdings of the ETF, with 4.9%, 4.4% and 4.4% allocation, respectively (as of Sep 22, 2017). The fund has returned 8.7% in a year and 10.5% year to date (as of Sep 22 2017). DVYA currently carries a Zacks ETF Rank #3 with a Medium risk outlook.

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


 
Source: Yahoo Finance

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