New Zealand ETF Is a Risky High Yielder

There are some inconvenient truths about the current market environment. First, until the recent surge in agricultural commodities such as corn and soybeans, the commodities complex had been taking a beating. Second, thanks to lingering concerns about a hard landing in China, select Asia-Pacific markets had become dangerous places for U.S. investors. Combining those themes, it would be reasonable to assume New Zealand and the iShares MSCI New Zealand Investable Market Index Fund

would earn a spot on "must avoid" lists. Not so fast. Despite New Zealand's status as a commodities-related trade and its location in the Asia-Pacific region, ENZL has proven remarkably sturdy this year. Year-to-date, the ETF is up more than 4 percent. That trails the SPDR S&P 500

by more than 200 basis points, but ENZL has also easily outpaced the iShares MSCI Australia Index Fund

and the iShares FTSE China 25 Index Fund

. There is a bear case regarding ENZL. The ETF has plunged 9 percent in the past three months as Europe's sovereign debt crisis has escalated. Concerns about the country's domestic debt

. Moreover, there is a perceived weakness throughout Asia-Pacific, one more factor that has weighed on ENZL in recent months. There are two sides to every coin, though, and there is a modest bull case for ENZL as well. For starters, the fund features a 12-month trailing yield of 7 percent,

. There is always an argument to be made against yield traps, but ENZL has another trait that might appeal to conservative investors looking for international exposure: a beta of 0.84, lower than SPY's. Said differently, ENZL has shown a tendency to lag U.S. and Australian equivalents in up markets, but the New Zealand fund can also be somewhat sturdy in less favorable environments. Plus, New Zealand's equity market has a strong reputation for offering better dividend yields than what are found in the U.S. That much is obvious by the fact that ENZL's yield is more than triple that of SPY's. Concerning New Zealand's local economy, the manufacturing and services sectors have shown some promise as of late, but there are lingering concerns about the health of the construction sector,

. The silver lining for New Zealand's construction industry is that the government expects to spend about $10 billion over the next two years on reconstruction projects related to the 2010 and 2011 Christchurch earthquakes. ENZL is relevant as a New Zealand rebuilding trade because the ETF allocates 16.4 percent of its weight to materials stocks and 14.8 percent of its weight industrial names. The bottom line with ENZL and New Zealand at large at the moment is two-fold. New Zealand's economy, equity market and, by virtue, ENZL, will be held hostage to the euro zone's trials and tribulations -- at least for the foreseeable future. On the other hand, it is hard to ignore that yield and the fact that ENZL is a lower beta option than U.S. equities. Adding it all up, patient investors can probably nibble at ENZL here and look to add to those small positions down the road. For more on developed market ETFs, click

.