BlackRock: There's hidden value in CASSH

December 3, 2012: 10:27 AM ET
map cassh
The CASSH countries make up the latest catch-phrase on Wall Street.
NEW YORK (CNNMoney)

Move over BRICs. Look out PIIGS. Here comes CASSH.

The CASSH countries -- Canada, Australia, Singapore, Switzerland and Hong Kong -- make up the latest catch-phrase on Wall Street.

Russ Koesterich, global chief investment strategist for asset manager BlackRock (BLK), coined the term in a recent blog post. "Because what the financial markets desperately need is another acronym," he said.

All kidding aside, Koesterich believes CASSH countries offer hidden value, and recommends investors increase their exposure.

Here's why.

While they are obviously very different, the CASSH countries have certain things in common that make them attractive as a group, according to Koesterich.

Unlike the United States and Europe, the CASSH countries all emerged from the financial crisis in a comparatively healthy state. There is no fiscal cliff or systemic debt crisis in these countries, which generally have balanced budgets and low levels of unemployment.

Given the advantage of a strong balance sheet, the CASSH countries are poised to outpace their larger rivals in economic growth next year.

Koesterich estimates that gross domestic product in the CASSH countries will expand 3% on average in 2013. That compares with about 1% in the euro area, and little more than 2% in the United States and Japan.

"Overall, the three developed markets are struggling with a number of headwinds," he said, pointing to unsustainable public debt and continued deleveraging by households and business. "These are developed markets that don't suffer from those headwinds."

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At the same time, the CASSH countries boast advanced economies and liquid financial markets. That should make investing in them less risky than emerging markets like Brazil, Russia, India and China.

The CASSH countries are also home to profitable corporations that compete on a global scale. Yet stocks in these countries generally trade at valuations similar to those in larger markets.

Dividend-payers play Cliff Hangers

Of course, there are still risks.

Koesterich says investors should be aware that fluctuations in foreign exchange rates can eat into investment returns when converted back into U.S. dollars. But he maintains that foreign exchange risks are "balanced" for the CASSH countries and broadly similar to those in other overseas markets.

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It's also important to diversify.

Koesterich recommends a portfolio with a 20% exposure to Canada, Australia, Singapore, Switzerland and Hong Kong. This equal distribution should help mitigate the currency risk and balance out the "basket" of countries.

Exchange-traded funds are probably the easiest way to execute this strategy. Under its iShares family of ETFs, BlackRock offers investors exposure to the CASSH countries via the MSCI Canada Index Fund (EWC), MSCI Australia Index Fund (EWA), MCSI Singapore Index Fund (EWS), MCSI Switzerland Index Fund (EWL) and MCSI Hong Kong Index Fund. (EWH)

Investors may also consider ETFs that are listed on local stock exchanges in the CASSH countries, such as the Vanguard MSCI Australian Large Companies Index ETF and Vanguard MSCI Canada Index ETF.

Canada and Australia both represent big bets on commodity prices, while Singapore and Hong Kong are global financial centers. Switzerland is also a play on banking, although the nation is also home to major pharmaceutical and consumer staples companies.

Some investors may be turned off by the exposure to commodity prices that Canada and Australia imply, given the dour outlook for global demand. But the risk of a slide in prices for crude oil or metals is roughly the same in the United States, according to Koesterich.

Likewise, the banking sector continues to recover from the financial crisis and adapt to new regulations. Koesterich acknowledged that bank stocks can be volatile, but that is not necessarily a bad thing. In addition, banks in Singapore, Hong Kong and Switzerland are generally in better shape than rivals in places like Portugal, Ireland, Italy, Greece and Spain.

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