‘CASSH’ ETFs: Smaller, developed countries that offer hidden value

Nov 30th, 2011 | By | Category: Equities

In a recent research paper, the iShares investment strategy team made the case for investing in the ‘CASSH’ countries – that’s Canada, Australia, Switzerland, Singapore and Hong Kong. We summarise their analysis below and identify a number of ETFs investors can deploy to play this theme.

The case for ‘CASSH’ ETFs – Smaller, developed countries that offer hidden value

There is a growing consensus among investors that developed markets are stuck in a slow growth regime, defined by excessive debt, structural deficits, high unemployment and deteriorating demographics.

Canada, Australia, Switzerland, Singapore and Hong Kong

The case for 'CASSH' ETFs – Smaller, developed countries that offer hidden value (Toronto, Canada, pictured)

Not all developed markets fit this characterisation, however. Many smaller, developed countries are less burdened by debt and structural deficits, and, for the most part, enjoy better growth prospects.

Specifically, Canada, Australia, Switzerland, Singapore and Hong Kong – or CASSH – appear fundamentally stronger than most of the large, developed countries.

A combination of lower debt and less structural damage from the financial crisis suggests that these countries should, on average, grow faster than their larger peers.

Faster economic growth has historically correlated strongly with faster earnings growth, which in turn is the ultimate driver of stock market returns.

The CASSH countries also contain corporate sectors that are, on average, at least as profitable as those in the United States, Europe, and Japan, and are more than capable of competing on a global stage.

While these countries will be impacted by systemic risk along with the rest of the global economy, these countries do not suffer from the same fiscal imbalances as the United States, Europe, and Japan. As a consequence, their idiosyncratic risk is lower and should be rewarded with a lower discount rate and a higher multiple.

Despite all these advantages, however, investors can pay approximately the same price for a dollar of earnings in the CASSH countries as they would for the same earnings in the United States, Europe, or Japan. To the extent that investors are getting better fundamentals for the same price, they should consider overweighting these markets in their equity portfolios.

An overweight position in smaller, developed markets may also be justified on the basis of their currencies.

Imbalances in many of the larger, developed countries may ultimately manifest in long-term depreciation of the dollar, euro, and yen. Countries like Canada and Singapore, in particular, are well placed to benefit from this trend and can provide additional diversification for investors.

All these factors suggest that CASSH countries represent a highly compelling investment opportunity.

iShares MSCI Canada ETF

Lyxor ETF Canada

DB X-tracker MSCI Canada Index ETF

Credit Suisse MSCI Canada ETF



iShares MSCI Australia ETF

Lyxor ETF Australia

DB X-tracker S&P/ASX 200 ETF

Credit Suisse MSCI Australia ETF

Amundi ETF MSCI Switzerland

iShares MSCI Singapore Index ETF

Hong Kong
iShares MSCI Hong Kong Index ETF


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