Courtesy of Daniel Sckolnik, ETF Periscope
“A government that robs Peter to pay Paul can always depend on the support of Paul.” — George Bernard Shaw
It is, officially, winter. If you need any further confirmation than the ridiculous volume of snow that has recently blanketed a large part of the country, look no further than to the Bears, who apparently are curled up and hibernating. That is, if you can find any of them.
Back in November, the Dow Jones Industrial Average (DJIA) spent the month’s final two weeks testing the psychologically significant 11,000 level for support. During that period, 11,000 was breached on three separate occasions intra-day, but held up each time inter-day. The Dow used that baseline to blast off nearly 250 points on the first day of December, and has quietly and unspectacularly climbed another 400 plus points since then. Unspectacularly, because both the volatility range and the trading range has operated within a fairly narrow scope over this time period, in marked contrast to the much broader swings that have occurred in the markets for much of 2010.
This recent ascent has been mostly steady and gradual, with the exception of the last few days, when some negative news, including an uninspiring unemployment report, slightly irritated the sleepy markets. Still, the downside action was relatively small, and the Dow remains well above the 50-Day moving average, which has leant an additional layer of support over the course of the current five-week uptrend.
If you look at the trend lines over the last year, this current trajectory most resembles the 600-point rise that began in March, and carried right up until the infamous “flashcrash” on May 6th. Of course, as the saying goes, past results do not guarantee future performance. Still, some trend patterns are worth noting. With the advent of the new earnings season scheduled to begin next week, it won’t take too long to see if the trend will continue, or to see if the Bears choose to stagger out of their caves and take a measure of exercise.
Trending markets are always worth paying attention to, and often serve as opportune moments to make some additions to the old virtual portfolio. If you’re in the mood for something a bit on the exotic side, some attention might be paid towards the varied menu offered up in the emerging markets arena. The last year provided sterling returns for a number of countries classified under this banner.
A South African ETF would have added a nifty 24% to you bottom line. One Hong Kong ETF returned a robust 21%. What about Chile? 25%. And if you had the foresight to see the potential of Thailand, a bet on that country via one of its ETFs would have made you a tidy 48%. Now that’s sweeter than a bowl of Tom Yum Goong.
Most investors who’ve been in the game for any duration have figured out that high returns equal high risk, so as alluring as these sort of bottom-line returns are, caution is strongly advised. The same elements that make some of these emerging markets so attractive are directly related to that particular market’s potential, which is just another word for possibility. Volatility in a country’s politics and economic structure can cut both ways, so act accordingly.
If this sector is somewhat new to you, it might best be played by acquiring an ETF that represents a country or region you have either some familiarity with or interest in. For your consideration, then, a few ETFs in the emerging markets category.
If you think you want to get in on some South America action, there’s GXG (Global X/InterBolsa FTSE Colombia 20 ETF). It tracks the FTSE Colombia 20 Index, a market capitalization-weighted index of the 20 most liquid stocks in the Colombian market. The index was created to measure the performance of its broad-based equity markets.
Think the Middle East and Africa hold potential? Then GAF (SPDR S&P Middle East & Africa ETF) might hold some appeal. It tracks the S&P Mid-East and Africa BMI Index, which measures the investable universe of publicly traded companies domiciled in emerging Middle Eastern and African markets.
A more focused approach on Africa might lead you to conclude South Africa holds the ticket to profits. If so, EZA (iShares MSCI South Africa Index Fund) should suffice. It tracks the MSCI South Africa Index, which measures South Africa’s equity market performance.
Have a yen for something out of Asia? Then EWH (iShares MSCI Hong Kong Index Fund) could work for you. This ETF, which tracks the MSCI Index Fund, measures the performance of Hong Kong’s equity market.
So we’ll see how the earnings season shakes out over the next few weeks, and discover whether we’ll continue to climb the trend line to the upside. Or rather, like the children of the snow this winter season, we sled downhill at a scary clip.
ETF Periscope
Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.
