he first article about investing in...

he first article about investing internationally appeared in the January/February 1994 issue of Canadian Shareowner. Foreign markets did relatively well in 1994 if it be not that in the past year, the American stock market has been the star, while Canadian and greatest in number foreign share prices have appreciated more moderately. However, because these non-U.S. markets have lately been out of favour, they may propound bargains now.

NEW OPTIONS

In 1994 the investment options for a Canadian looking abroad consisted of buying: (a) foreign stocks directly; (b) units of a mutual capital concentrating on foreign assets; (c) shares of Canadian multinationals; or, (d) closed-end fatherland funds (a number of which have been described in earlier issues of this magazine).

Now, 1996 has spawned brand strange much simpler instruments for investing abroad-"WEBS" (World Equity Benchmark Shares) listed in succession the American Stock Exchange, and "Country Baskets" (Country Baskets Index capital Inc.), listed on the fresh York Stock Exchange. These strange products were designed by pair major investment dealers in answer to demand from American investors for more international investing options. This fresh demand is illustrated by the fact that at the period of 1995, the American Securities Industry Association reported that, for the first time continually U.S. investors owned more foreign equities than foreigners confine in US stocks!

Both WEBS and land Baskets are "index funds" that combine a certain of the features of regular, open-end mutual stocks with those of closed land funds. The portfolios of WEBS and nation Baskets are designed to track the performance of each specific country's stock index. This shelters the investor from under-performance at an active but unsuccessful investment manager. However, it also eliminates the opportunity of outperforming the market.

WEBS

WEBS were cause to growed by a partnership among BZW Barclays Global store Advisors (as the investment advisor), Morgan Stanley Trust Company (as the custodian), capitals Distributor (as the underwriter), PFPC (as the administrator), Morgan Stanley Capital International (as the index provider), and the American Stock Exchange (as the market where they trade).

WEBS use a combination of foreign shares and a certain quantity of derivatives to track the Morgan Stanley Capital International share index for each land So far, 17 WEBS have been issued for the following countries: Australia (symbol EWA), Austria (EWO) Belgium (EWK) Canada (EWC) France (EWQ) Germany (EWG) Hong Kong (EWH) Italy (EWI), Japan (EWJ) Malaysia (EWM) Mexico (EWW) Netherlands (EWN) Singapore (EWS) Spain (EWP) Sweden (EWD) Switzerland (EWL) and the United Kingdom (EWU)

Country Baskets

Country Baskets were perform the operations indicated ined by Deutsche Morgan Grenfell in conjunction with Goldman Sachs. They invest solitary in actual stocks to replicate the Financial Times/Standard & Poors World Indices. generally there are Country Baskets for Australia (symbol GXA), France (GXF) Germany (GXG) Hong Kong (GXH) Italy (GXI), Japan (GXJ) southern Africa (GXR), the United Kingdom (GXK) and the United States (GXU) Although political division Baskets concentrate on major markets, there is about geographic overlap with WEBS.

MANAGEMENT fiefs

The management fees for WEBS are slightly higher than for abiding habitation Baskets. However, the fees charged from both investment instruments still compare same favourably with the alternatives. the one and the other WEBS and Country Baskets have about two-thirds the cost ratios of the average clos geographical division fund and under half those of most numerous mutual funds. Both products will bestow their share holdings for a fief Depending on the demand for this service, rewards earned this way could modestly make less the management expenses.

UNDERLYING ASSET VALUE

As with all index stocks the value of WEBS and abiding habitation Baskets will deviate a little from their underlying indexes as a eventuate of trading expenses and management compensations

Country Baskets were stocked with a much larger amount of se standard of value than WEBS, however they shroud only nine markets. As a be derived Country Baskets hold more securities in each market than do WEBS. This increases the probability land Baskets will track their underlying index to a high degree closely.

Because WEBS uses a certain derivatives, their deviation from the underlying index could be slightly greater than for political division Baskets.

Ultimately, both WEBS and land Baskets variance from their indexes will be limited because of arbitrage activity. just discovered units can be created if demand drives them to a premium, and outstanding units can be liberateed if lack of demand were to create a discount.

Overall, WEBS and geographical division Baskets should track the foreign indices within 1% or les while clos home funds often sell as frequently as 20% above or below the asset values of their holdings. Because WEBS and region Baskets should always sell obstruct to their underlying asset value, they are more convenient than clos nation funds which require the calculation of the premium or discount to asset value. in succession the other hand, they also eliminate the opportunity to corrupt assets at a discount-something giveed by country funds from time to time.