Today’s recommendation offers an easy way to diversify your portfolio geographically, courtesy of the Forbes/ISA Closed End Fund & ETF Report.
“The European Union is suffering from the effects of a unified currency. A country in control of its own currency can use it to offset economic imbalances. If its products are too expensive to export, it can devalue the currency to make its goods cheaper to other countries. If its goods are to cheap and causing internal inflation, it can increase the value of it currency and cool things off. Because of the Euro, individual countries in Western Europe don’t have that option; they must get along with one universal currency that can’t be manipulated by any one country.
“The Eastern European countries are not in the Euro and are new enough governments that they haven’t run up large budget deficits yet. We previously recommended the Morgan Stanley Eastern Europe Fund Inc. (RNE) back in September 2005 when the fund was trading at a small 0.20 premium. We recommended a sale in February 2006 when the premium ballooned to 20.36%. Today the fund trades at $17.11 with a net asset value of $19.08, giving the fund a -10.32% discount. Another advantage of the fund is that it invests in equities denominated in their native currencies, giving holders some diversification from dollar-denominated investments. The Eastern Europe fund is not an income play, since it’s only paid a small dividend of $0.04 over the past few years. Morgan Stanley bought in 617,438 shares in July to help reduce the discount and may do so again. Its largest holdings are in Russia at 55.37%, followed by Poland at 26.50%. The fund uses minimal leverage at 1.59% of holdings.”
- Jack Colombo, Forbes/ISA Closed End Fund & ETF Report, October 2012