Dear Mr. Berko: My wife and I are engineers, and we’re in our late 40s. In June 2015, you recommended a group of single-country exchange-traded funds, and we bought 800 shares of the iShares MSCI Italy Capped ETF at $15. It’s now about $31, and our stockbroker wants us to sell this ETF and put the money in the Putnam Global Health Care Fund, which has a 10-year average annual total return of 11.1 percent. Please tell us what you think of this trade. If you don’t like Putnam, what investment would you recommend? We seek capital gains but don’t want to own risky stocks. That’s why we buy ETFs or mutual funds.
— PF, Kankakee, Ill.
Dear PF: Founded in 1937, the eminently respectable Putnam Investments has a sterling reputation. I like everything about Putnam except its outlandish 5.75 percent mutual fund commissions. However, the Putnam Global Health Care Fund (PHSTX-$59.38) doesn’t have “a 10-year average annual total return of 11.1 percent.” Either your broker’s Slinky’s kinked or he’s smoking those left-handed Luckys! PHSTX’s 10-year load-adjusted return is 9.4 percent. Not bad, but it’s a 16.6 percent difference.
I recommended seven European ETFs in that column two years ago. The fund you selected, the iShares MSCI Italy Capped ETF (EWI-$31.09), is the only issue that still trades above its recommended price. But I think it would be wise to take EWI off the table. The Italian economy is the eighth-largest in the world and the third-largest in the eurozone. However, the Italian economy is tethered by political, social and economic chains. Italy can’t reduce its debt burden because of sterile economic growth, high unemployment and a lack of labor reform. Add to that continued failure to meet spending targets, intransigent unions, a low birthrate, a shrinking gross domestic product and dreadfully corrupt local and national politicians and Italy’s economy is just a few clowns short of a circus. All this is compounded by an ongoing weakness in the banking sector and a risible failure of Parliament to bring solutions to the table.
I think your broker gave you good and timely selling advice. Take it. However, his Putnam Global Health Care Fund advice would be extraordinarily expensive, because it would cost you a 5.75 percent commission plus annual expenses of 1.1 percent to own it. I know that brokers have pot and mortgage payments, cars, boats, motor homes and credit cards to pay off and other bills, too. But 5.75 percent of a $24,872 purchase is $1,430. That would be a lot of bucks to pay when there are far better no-load funds you could own in the same sector.
