EAFE exposure with NBI International Currency Neutral Index Fund
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Objective research, analysis, and insight on investment funds in Canada from an acknowledged industry expert

By Dave Paterson  | Wednesday, April 11, 2018


Equity valuations, particularly in the U.S., have been running well above historic norms. The S&P 500 Composite Index is still trading at more than 20 times forward earnings. One area where valuations appear to be considerably more reasonable is in Europe and Asia. The MSCI EAFE Index now trades at about 15 times earnings, well below the U.S.

Turning to the fundamentals of the region, Europe and Asia are well positioned for decent economic growth, which is expected to see strong profit growth. According to estimates, the pace of earnings growth in the Europe, Asia, and Far East (EAFE) regions is expected to modestly outpace both Canada and the U.S. in the near-term. Combined, this makes EAFE a potentially attractive place to invest.

There are a few great actively managed mutual funds that invest in international stocks, including Trimark International Companies Fund, Mawer International Equity Fund, and Black Creek International Equity Fund. However, for those looking for a lower cost, passive mutual fund solution, the NBI International Currency Neutral Index Fund is a sound choice. It is designed to track the return of the MSCI EAFE Index, net of fees. Costs are reasonable, with an MER of 0.67%. The investment exposure is through futures contracts, rather than direct holdings of individual stocks.

An interesting feature of this fund is the currency exposure is fully hedged, which is why it has soundly outperformed over the past quarter. Many of the other funds in the International Equity category do not hedge, which has resulted in headwinds as the Canadian dollar has risen against the U.S. dollar from about US$0.75 last year at this time to a recent US$0.79.

If you believe the Canadian dollar has further to rise, then you’ll want to have fully hedged exposure such as this fund offers. If you believe the dollar will fall, then an unhedged version is likely a better choice.

Given the valuation levels and reasonable cost, this can be a good solution for those looking for passive exposure to European and Asian stocks.

NBI International Currency Neutral Index Fund
Fund company:
National Bank Investments
Fund type: International Equity
FundGrade Rating: C
Style: Large Cap Blend
Risk: Medium
Load status: No load
RRSP/RRIF Suitability: Excellent
Manager: Hugo Sarkisisan since June 2009
MER: 0.67%
Fund code: NBC877 (No load)
Minimum investment: $500

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2018 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.


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