03/23/16   How Well Do You Know Belgium?

Editor’s Corner

Ron Rowland

Terrorists struck Brussels, Belgium, yesterday, making the city and nation front-page news worldwide. If you have been following global news on terrorism, then you are probably aware that the Paris bombings four months ago were orchestrated in Belgium. Over the weekend, the last known surviving suspect of the Paris bombings was apprehended in Brussels.

We’ve all heard about the country, but how much do we really know about Belgium? Geographically, it is located in the northwest section of Europe and is about the size of the state of Maryland. Belgium has a relatively small coastline on the North Sea, sandwiched between France and the Netherlands. Its eastern boundary borders Germany and Luxembourg. Unlike many European countries with their own language, 60% of Belgians speak Dutch and 40% speak French.

According the U.S. Central Intelligence Agency’s World Factbook, Belgium has about 11 million residents. There are about two million people living in the Brussels metropolitan area, and another one million people call Antwerp home. Belgium’s unemployment rate is 8.6%, and 15% of its population is below the poverty line. Its GDP of $458 billion places it 38th in the world. Brussels is sometimes referred to as the capital of Europe because it is home to the European Union and NATO.

Religious segmentation is estimated to be 65% Christian, 5–8% Muslim, and 20–27% agnostic or atheist. However, these nationwide numbers do not tell the whole story, because the Muslim population of Brussels was estimated to be 24% in 2012 and even higher today. The country’s refugee population was estimated to be 31,000 in mid-2015, and an online search will reveal numerous stories about the Belgium refugee crisis.

The iShares MSCI Belgium Capped ETF (EWK) is the only U.S.-listed ETF that focuses on this country. Launched in March of 1996 as part of a suite of 17 single-country funds, there are only two ETFs that have been on the market longer: SPDR S&P 500 ETF (SPY) and SPDR S&P MidCap 400 ETF (MDY).

However, the typical U.S. investor probably recognizes only one of the 40 stocks in the Belgium ETF, despite its 20-year history, and that stock is likely to be remembered as a St. Louis, Missouri, brewer. The top-10 holdings and their allocations are Anheuser Busch InBev SA 22.3%, KBC Groep 6.6%, Delhaize Group 5.5%, UCB SA 5.1%, Solvay SA 4.2%, Ageas SA NV 4.2%, Groupe Bruxelles Lambert SA 3.9%, Proximus NV 3.3%, Umicore NV 3.1%, and Colruyt SA 2.7%.

The sector breakdown of EWK has Consumer Staples at 32.2%, Financials 26.3%, Materials 11.4%, Health Care 10.3%, and the other sectors each have less than a 5% representation. Historically, it has outperformed the broader iShares MSCI Eurozone ETF (EZU) with a 7.2% annual return for the past 15 years versus 3.6% for EZU. However, it did not perform well during the 2007–2009 financial crisis, suffering a 74% decline, and it still has to gain another 20% before claiming a new high.

The recent tragedy has had little effect on the ETF. Yesterday, EWK slipped only 0.1%, and it is down less than 1% in afternoon trading today. Broad-based European funds are performing worse. Although the Belgium ETF seems to be shrugging off the attacks, we as citizens of the world should not readily accept terrorist behavior as the “new normal.”

Investor Heat Map:3/16/16

Sectors

Materials climbed three spots higher to take over the top of the sector rankings and complete its ascent from the next-to-last position it was stuck in seven weeks ago. Its rise from the ashes is not only thing significant about its new status, as the Materials sector’s momentum score of 44 is the highest that any sector category has posted in the past 14 months. Utilities was pushed out of first and down to second place in the process. The third-place spot is now held by Industrials, another fast-rising newcomer that was in seventh a week ago. Energy moved back into the upper half today after being on the bottom just three weeks ago. It made a similar move back in November only to fall back to the very bottom five weeks later. Perhaps Energy will have more staying power this time. Telecom successfully matched its momentum score of a week ago, but in a testament to the strength of other sectors, it still resulted in a four-place slide to fifth. Real Estate and Consumer Staples were two other categories pushed lower, both retreating from the upper half of the rankings. Technology rose two places higher, Consumer Discretionary slipped a notch, and Financials held steady. Health Care remains the only sector in red and has been on the bottom for three weeks.

Styles

Mid-Cap Value solidified its place at the top. Mid-Cap Blend and Large-Cap Value were also successful at maintaining their second and third places respectively. Small-Cap Value was the lowest-ranked member of a near-three-way tie for fourth place a week ago, and today claims that spot all for itself. This puts all three of the Value categories back into the upper half. Mid-Cap Growth climbed a spot higher and is trying to insert itself among the Value categories. Its Mid-Cap classification is pulling it higher, as the other two Mid-Cap categories are at the top. However, its Growth characteristics are currently holding it back. Mega-Cap fell two spots lower, while Large-Cap Growth and Small-Cap Blend held steady. The final two style categories have now transitioned from red to green as Small-Cap Growth edged ahead of Micro-Cap. Although they are now posting positive momentum scores, both are lagging the other style categories.

Global

Today marks three consecutive weeks without any changes in the rank-order of the top-six global categories. Latin America posted strong gains and now has a substantial 35-point momentum lead over second-place Canada. To help understand how significant this is, the two extremes of the style categories are currently separated by just 28 points. Pacific ex-Japan, Emerging Markets, the U.S., and World Equity round out the highly stable group of six at the top. All 11 global categories posted momentum improvements for the week, although the increases were not evenly distributed. Shifts among the lower ranked segments resulted in China and the U.K. moving higher. These in turn pushed the Eurozone, EAFE, and Japan all a notch lower. Last-place honors have changed each of the past three weeks with Japan owning the spot today. Japan was at the top just seven weeks ago, demonstrating how quickly fortunes can change in the global markets.

 

Note:

The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

 


“It’s like a spider web: One big Islamic State network operating within Europe. Even though the far ends of the network don’t really know each other, they are all connected in some way.”

-Pieter Van Ostaeyen, expert in Belgian jihadist networks


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