As most clients and readers know over the course of 2020, we revisited our asset classes and ran efficient frontier analysis to determine if we still have the long-term historical returns to justify our investment decisions. As part of that analysis, we found a case for including an overweight to foreign healthcare companies.
To implement these findings in January of 2021, we added 26 individual healthcare stocks to our Foreign allocations. The 26 companies we picked represented between 59.12% when measured by iShares Global Healthcare ETF (IXJ) and 50.11% when measured by iShares MSCI ACWI ex U.S. ETF (ACWX) of all foreign healthcare stocks. This also represents 61.90% of the companies and 90.06% of the cap-weight of healthcare companies from our Freedom Investing funds.
When we initially selected these 26 companies, we were able to implement this strategy using 11 foreign companies listed on the U.S. exchange, 13 foreign companies available for purchase as an American Depositary Receipt (ADR), and 2 foreign companies only available for purchase as a foreign issue which is not an ADR.
At the start of the year, purchases of all of these securities had no transaction fee at Charles Schwab. However in December 2021, Schwab added a transaction fee to some of the holdings. Now, securities whose tickers end in “F” (those which are foreign issues other than ADRs) have a $50 transaction fee at Schwab and securities whose ticker end in “Y” (those which are ADRs) have a $6.95 transaction fee at Schwab. Meanwhile, those which are listed on a U.S. exchange continue to have no transaction fee.
Here is how an initial equal weight of each security type performed over the time period:
|New Transaction Fee at Schwab||Security Type||Holdings||3-Month||6-Month||9-Month||1-Year|
|$0.00||U.S. Listed Securities||11||0.03%||-0.27%||8.27%||10.29%|
|$50.00||Other Foreign Issues||2||-0.24%||-0.41%||3.65%||-5.11%|
While past performance is no indication of future return, we feel that the non-ADR foreign issues do not provide enough of an advantage to justify the $50 transaction fee. The two companies that we were buying from other foreign issues not on U.S. exchanges or via ADR were Fisher & Paykel Healthcare (FSPKF) in New Zealand (down -9.11% for the 12-month) and CSL Limited (CMXHF) in Australia (down -1.11% for the 12-month).
CSL Limited does have an ADR (CSLLY), so we will switch to the ADR for new purchases of our foreign healthcare strategy. For Fisher & Paykel Healthcare, it previously had an ADR (FSPKY) but it is not currently available, so we we have decided simply to remove it from new purchases.
For those who already hold them, there is no benefit from selling them just based on this change at Schwab. Sales of these holdings will be subject to the $50 transaction fee.
Photo by Nick Karvounis on Unsplash