Investing, Eurostoxx 50 and the Irish Economy...

R

ronaldo

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Okay, well let me start by saying that I'm no professional and have a very vague knowledge of economics.

However, I was thinking about the Irish economy last night and how recent and future interest rate rises are a major threat to it. I've also read various articles lately highlighting how things are looking gloomy for the dollar, the latest being: http://www.bloomberg.com/apps/news?pid=20601087&sid=arhazjYdU1po&refer=home.

Now, as far as I can see with regards to Europe, Ireland is insignificant when it comes to the ECB deciding to hold or raise interest rates and they look primarily at the likes of Germany, France and Spain. Germany in particular has been the country that has been keeping the ECB rates artificially low for the Irish economy. However, now that Germany is emerging from the doldrums, rates are rising sharply. Would I be correct in saying that, as Europe continues to do well, rates will continue to rise and it's possible that Ireland could enter into a similar economic state as Germany has been in in recent years due to our high levels of borrowings - some are already finding the pinch of rates and more will follow as fixed-rate deals end?

Now, assuming what I've said above is correct, would it be a valid opinion that one should possibly invest in the Eurostoxx 50? My reasoning is that, as Germany continues to improve, rates will rise resulting in a negative affect in Irish stocks related to construction and banks with exposure to mortgages which make up a large proportion of the ISEQ. However, at the same time, European, and in particular German, stocks should improve.

Maybe my reading of it is all a loada b*****ks but I just don't see the point in investing in US shares due to the currency risk or investing in Irish shares because that's where our jobs, etc. are.

I'm interested in particular in ETF's. Possibly the Lyxor Eurostoxx 50 one which has management charges of only 0.25% or possibly, if I'm feeling a little bit more adventurous, the SGAM leveraged DJ EuroStoxx 50 one described here which has management charges of 0.6% but has 150% - 200% exposure to the Eurostoxx 50 based on where the manager thinks the Eurostoxx is heading.

As I'm young, I think I might go for the higher risk, leveraged option and invest in bundles of €2,000 around every 3 months through Keytrade or similar but I'm still undecided as I like the low fees of the Lyxor offering.

I'd be interested in any opinions of the more economic minded of you of whether all of the above are valid points or if there are any major flaws with my thoughts. Thank you.
 
If one of your concerns is rising rates, is a leveraged fund really the way to go?
 
That's a valid point. However, the main concern with rising rates in my opinion is with Irish people, where many have taken mortgages of 5 or more times their annual salary when the historical average is somewhere below 3 times salary : [broken link removed]

Rising rates is my concern in particular for the Irish economy - not so much the European economy as, for example, the Germans are a nation of savers. My theory is based around the idea that the ECB won't increase rates if the larger European countries aren't doing well (as has been the case with Germany in years gone by). Therefore, rates will rise if the larger countries are doing well and if the larger countries are doing well, the Eurostoxx 50 should rise. Whether this theory is true or not - I don't know. Hopefully someone can shed some light on this.
 
jrewing said:
Can you please explain the thinking here for an amateur ?
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Leveraged funds attempt to increase returns through gearing - borrowing to invest within the structure of the fund. They may meet the interest repayments through the dividends received on stock holdings or by selling shares that have appreciated. The aim is to increase exposure to equities beyond the money invested in the fund and it obviously requires a greater return from the fund than the cost of the interest. The higher the cost of borrowing the harder this will be to achieve. Obviously the use of leverage entails greater risk as well as there is more downside as well as upside exposure.

Here's an article that explains the concept - http://www.fool.com/investing/mutual-funds/2007/01/03/using-leveraged-funds.aspx
 
Am complete novice with regard to shares and have been doing quite a bit of reading on them in recent times. I am interested in ETFs and feel the ISEQ has run its course for the most part but feel Germany is an area I would be very interested in investing in. Two questions. First what are anybody's thoughts on this and secondly how do I go about finding further information and investing in such an ETF.
 
ronaldo said:
I'm interested in particular in ETF's. Possibly the Lyxor Eurostoxx 50 one which has management charges of only 0.25% or possibly, if I'm feeling a little bit more adventurous, the SGAM leveraged DJ EuroStoxx 50 one described here which has management charges of 0.6% but has 150% - 200% exposure to the Eurostoxx 50 based on where the manager thinks the Eurostoxx is heading.
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Ronaldo - have a look at the Deutsche Bank ETFs for the Eurostoxx 50 and DAX (DBXE, DBXD) - see: http://www.dbxtrackers.com/ They have managment fees of 0.15% which (as per usual) is taken from the dividend payment to be as tax efficient as possible. I have purchased these through Xetra and found the bid/offer spread to be quite tight.

I looked at that leveraged product, but do the math on the leveraged product, including Euribor interest rates, for varying rates of return both +ve and -ve before you purchase it. I decided against it.
 
"managment fees of 0.15% which (as per usual) is taken from the dividend payment to be as tax efficient as possible"

Del3d - do you mean by this that deutsche bank normally deduct fees from dividend or most ETF issuers? can i ask how you found this out.
 
ndublinooc said:
Del3d - do you mean by this that deutsche bank normally deduct fees from dividend or most ETF issuers? can i ask how you found this out.
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I read before in an article on "Seeking Alpha" that many ETFs reduce dividend payments by annual expenses for tax efficiencies (I think it was an article on tracking errors) - After checking the prospectus of the DB funds in question, I am not certain that it applies to these ETFs. Apologies for the confusion - the important point of my post was the 0.15% fee, which is the lowest that I could find after a lot of searching.
 
I've been thinking of buying Deutsche Bank stock myself. Saw it recommended somewhere.
Any views on this good or bad most welcome....

Oops.....sorry. Think I should have put this under a new heading.
 
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