ETF XRAY

Mexican, Australian ETFs Top Ten Year Returns

By Carl Delfeld of the Chartwell ETF Advisor

Over the past ten years, exchange-traded fund investors have been on the money to invest in overseas markets. Returns have been aided by a falling dollar and strong export growth.

Nine of the ten ETFs with the biggest yearly returns tracked overseas markets, according to Lipper data. Of those nine, four were in emerging markets.

The best performing country ETF was the iShares MSCI Mexico, (EWW) which pulled in an annualized 16.99% over the last ten years while the S&P 500 returned 3.88% a year over the same span.

Jesse Emspak of the IBD noted that the iShares MSCI Mexico tracks the Bolsa Mexicana, the country's stock exchange. It's relatively concentrated, with about 25% of the ETF weighting in America Movil (AMX).

Like many Latin American economies, Mexico has had steady, if modest, growth in the last decade.
The country also is exporting more to Europe and Asia as trade ties have grown and the peso has fallen in tandem with the dollar.

The next best returns come from iShares MSCI Australia, (EWA) which had an average annual return of 13.76% over the past ten years. Its biggest holding is BHP Billiton, (BHP) which took up 13.68% of the ETFs total assets. Australia has benefittted from being at the sweet spot of Chinese economic growth and the commodity boom.

Both the Mexican and the Australian ETFs have been part of Chartwell's Country Rotation ETFfolio.

Malaysiapore ETFs

By Carl Delfeld of the Chartwell ETF Advisor and Chartwell Partners Asset Management

Like two turbine engines powering a jet plane, the Malaysian (EWM) and Singapore (EWS) markets and ETFs have been working smoothly in tandem to give investors superior performance over the last year and after a pullback, are attractively priced.

It seems that investors, especially foreign investors, have finally begun to appreciate that Malaysia offers many of the attributes of its southern neighbor. Although palm oil and other commodities are an important part of the Malaysian story, investors have begun to recognize that its economy is well diversified with 43% of GDP attributed to the services sector while agriculture represents only 8%. It also has attractive demographics with 32% of its population under the age of 15 - more than double the proportion in Japan. Economic growth last year was a respectable 6% and the country has moved solidly into the middle income circle of countries with a per capita income of $12,900.

All of these favorable trends are finally being recognized by global investors and have also given the country the strength to improve political and economic relations with Singapore.

This brings us to the increasing economic integration between the two countries which can be viewed as a dividend to investors as it fosters higher economic growth and political stability. To see how much better bilateral relations are today, it is helpful to look back to the foundations of both countries.

While disputes between the two countries continue over deliveries of fresh water to Singapore, relations are as good as they have ever been since Singapore's 1965 secession from the Federation formed in 1963 when the former British colonies of Singapore and the East Malaysian states of Sabah and Sarawak on the northern coast of Borneo joined the Federation.

There are concrete signs of this increased integration and cooperation. The bridge which opened in 1998 connecting Singapore and Johor, Malaysia has reduced the traffic congestion at the Johor-Singapore Causeway.

A great way to learn more about Malaysia, Singapore and Thailand is to join Carl on his luxury investment tour, "Investing Along the Orient Express"

Then there was the recent meeting between the Malaysian and Singapore premiers, Abdullah Badawi and Lee Hsien Loong, and their agreement to set up a Joint Ministerial Committee with oversight over economic cooperation in the Iskandar Development Region (IDR) in the state of Johor in Malaysia, separated from Singapore by a 1km long causeway. The region spans an area of 2,217 sq. km., which is about thrice Singapore’s size. Both sides quickly agreed to the introduction of ‘smart cards’ to facilitate the two-way traffic of Malaysians and Singaporeans to the IDR. On a regular work day it is estimated that more than 150,000 workers commute over the Johor-Singapore causeway to earn a better living.

On the security front, both countries are members of the Five Power Defense Arrangements (FPDA) which is a joint defense arrangement between Malaysia, Singapore, Australia, New Zealand and the United Kingdom.

How should investors invest in these favorable trends which are raising the profile of Malaysia, reducing the global investment community’s perception of country risk and raising expectations that its economic growth curve will continue?

A shotgun approach would be to invest in the MSCI iShares Malaysian exchange-traded fund (EWM) which is a basket of leading Malaysian companies and has an annual expense ratio of only 0.54%. Financial companies account for 33% of the fund’s exposure, industrial firms are at 18% and consumer staples and discretionary companies together make up an additional 29%.

The best and most direct approach would be to take a grubstake in Johor real estate. It is hard to imagine that prices will not escalate as investment in the region and IDR project gain momentum.

Investing in Malaysia is a back door strategy to investing in Singapore and dynamic regional economic growth. For more on putting Singapore and Malaysia into your global portfolio go to Chartwell ETF.

Currency Moves Impact South Korean ETF (EWY) and Taiwan ETF (EWT)

By Carl Delfeld of the Chartwell ETF Advisor and Chartwell Partners Asset Management

Because country exchange-traded funds are not hedged against the U.S. dollar, dollar returns for these ETFs are affected by currency movements.

A good example is the Taiwan ETF (EWT) and the South Korean ETF (EWY). The Taiwanese dollar has appreciated by 6.5% since the start of the year, buoyed by last month’s elections which installed the opposition Kuomintang candidate as President with a high likelihood of improved relations with China. One example, Mr. Hu Jintao is scheduled to soon meet with the Taiwan's VP-elect Vincent Siew on the sidelines of a forum in Hainan.

In comparison, the Korean won has depreciated by 4.6%. The Financial Times reports that the countries’ respective balance of payments go some way towards explaining this. While Taiwan’s current account surplus widened to just over 8% of GDP at the end of last year, Korea sank into a deficit. Foreign investors have been selling Korean equities since the middle of last year. For some time, that was offset by fixed income inflows by Koreans borrowing offshore.

Politics will also play a role. Korea’s newly-installed president has pledged to lift economic growth, meaning the central bank may err more towards keeping the currency weak. Taiwan's new government may open the throttle.

Should Taiwan or South Korea be in your global ETF portfolio? Join Chartwell ETF for guidance.

Semiconductor Recovery Helps Taiwan ETF (EWT)

By Carl Delfeld of the Chartwell ETF Advisor

A winding down of semiconductor inventories has brightened the outlook for semiconductor stocks like Intel as well as the Taiwan exchange-traded fund (EWT) which has about 50% exposure to the semiconductor industry.

The political situation in Taiwan has improved recently in terms of potential opportunities to open more economic ties with mainland China due to the election of Ma Ying-jeou, the candidate of Taiwan’s KMT party. Mr. Ma takes office in early May.

There are already signs of thawing between Taiwan and China. They recently reached an agreement with Beijing that would allow its banks to take stakes in their Chinese counterparts through overseas subsidiaries.

The move will throw a lifeline to Taiwan’s overcrowded, underperforming banking sector by giving it access to China’s huge pool of corporate lending business, until now dominated by multinational banks.

Taiwanese companies are already the largest source of foreign direct investment in China and probably more than 1 million Taiwanese live and work on the mainland.

Now with the semiconductor industry gaining momentum the question is whether EWT has already made its move or has more upside. According to S&P data, the Taiwan market is trading at a bit more than 2 times book, 7.5 times cash flow and 17 times forward earnings.

Is it too late to jump on the Taiwan bandwagon? Join Chartwell ETF and see if Taiwan is in the Asian Opportunity ETF portfolio.

For those of you looking for a more direct ETF play on the semiconductor industry, Tom Lydon of ETF Trends offers the following options.

iShares S&P GSTI Semiconductor Index (IGW), down 12.8% year-to-date
PowerShares Dyname Semiconductors Portfolio (PSI), down 8.6% year-to-date
SPDR S&P Semiconductor (XSD), down 11.4% year-to-date
Merrill Lynch Semiconductor HOLDRs (SMH), down 8.2% year-to-date

UK and Dollar Go One Way, Euro and Asian Currencies Another

By Carl Delfeld of the Chartwell ETF Advisor

While the dollar and the pound are falling in part due to interest rate cuts, the euro as well as most Asian currencies are rising. Stronger Asian currencies are part of Chartwell's "Asian tilt" strategy as it selects exchange-traded funds for portfolios such as its Country ETF Rotation ETFfolio.

The Bank of England’s monetary policy committee cut interest rates from 5.25% to 5% to offset the effects of a consumer and property slowdown. The pound sterling dropped to a fresh record low against the euro. The European Central Bank, unlike the Federal Reserve and the Bank of England, has so far refused to cut rates in the face of the turmoil on global financial markets.

Meanwhile, currencies across Asia are rising. The Singapore dollar hit a record high of S$1.36 to the US dollar after the city-state tightened its monetary policy in response to an unexpected jump in first-quarter economic growth that raised inflation fears. The Singapore dollar has gained about 5% against the US dollar this year helping the Singapore ETF (EWS) gain ground.

The Singapore economy grew at an unexpectedly high rate of by 7.2% in the January-March period from a year ago, according to a preliminary estimate.

Moving to China, the renminbi strengthened beyond Rmb7 to the dollar for the first time since 1994 as China’s economic growth speeds on under inflationary pressure. This is good news for the new renminbi/USD ETF (CNY) which Chartwell recently added to some of its ETFfolios. Andrew Wood of the Financial Times notes that while the Shanghai stock market – which has fallen by 34% in value so far this year – took the news of the crossing of the Rmb7 to the dollar barrier in stride. The Shanghai composite index gained 1.7% to 3,471.

The yen strengthened as much as Y100.92 per dollar which is its strongest level this month.

Keep abreast of how currency movements will affect your global ETF portfolios by joining Chartwell ETF.

Will Record Cash Levels Flow to ETFs?

By Carl Delfeld of the Chartwell ETF Advisor

Will the record cash parked in money market funds move into exchange-traded funds leading to more ETF market share gains against mutual funds?

There is now $3.5 trillion parked in cash, levels up 44% during the last 12 months according to the Investment Company Institute. But despite declines in world equity prices, ETF industry assets rose approximately $14.5 billion during the month of March and ten new ETFs were launched.

Data from State Street's ETF Snapshot shows trends which may indicate where the money will flow if investor sentiment brightens. In March, flows to ETFs covering US and international equities declined for the third consecutive month. International ETFs experienced the largest decline in assets while currency ETFs saw the largest gain in percentage terms.

Sector ETFs delivered mixed performance in March. At one extreme, health care ETFs declined 4.9% whereas telecommunications services sector ETFs climbed 5%.

Find out what ETFs should be on your buy list when the market turns by joining the Chartwell ETF Advisor.

Chartwell Introduces ETF Harmony Portfolio Consulting

Chartwell Partners Asset Management has expanded its ETF Architect portfolio consulting services by adding ETF Harmony. ETF Harmony is an intensive and personal investor evaluation process that seeks to match an investor’s personality and goals with their investment portfolios.

“Just like a couple needs to be compatible, an investment portfolio needs to match the personality of an investor’s personality” says Chartwell Managing Director Carl Delfeld. He notes that recent market volatility has highlighted the need for advisors to build portfolios not just based on sound fundamentals but also compatible with the personalities of clients, “otherwise, clients will not stick to the plan and will bail out at the worst possible time.”

Most portfolio consulting models are still based on a series of tired, worn out numbers- oriented questions. As Alan Greenspan put it recently; "...these models do not fully capture what I believe has been……….the innate human responses that result in swings between euphoria and fear that repeat themselves generation after generation with little evidence of a learning curve."

Initially, Chartwell will offer ETF Harmony only to high net worth clients. The personal evaluation process begins with a client responding to a creative list of open ended questions followed by Delfeld flying out for a full day of personal follow up discussions about the client’s investment history, current portfolio, financial goals, personality and investment traits, and risk tolerance.

Next, Delfeld begins the ETF Architect stage and builds an overall portfolio strategy for the client using a core & explore approach with Chartwell’s fifteen ETFfolios as the core investment tool. Finally, the portfolio plan is reviewed by the client, fine tuned, and implemented either by the client or through Chartwell Partners. The fee for this highly customized service is $25,000.

Delfeld noted that he is in discussions with potential partners to offer an ETF Harmony product for the broader market through an automated website-based service (ETFharmony.com).

Chartwell Partners is a global asset management firm that has developed ETFfolios which it uses as building blocks for client portfolio strategies on the FOLIOfn brokerage platform. These ETFfolios include:

Core Conservative ETFfolio
Fixed Income ETFfolio
Global Dividend/Income ETFfolio
World Economic Freedom ETFfolio
Country Rotation ETFfolio
Country Rotation Momentum ETFfolio
Country Rotation Value ETFfolio
American Leadership ETFfolio
Global Sector Rotation ETFfolio
Global Growth ETFfolio
Emerging Markets ETFfolio
Asia-Pacific ETFfolio
China Strategy ETFfolio
Global Long/Short Strategy ETFfolio

Chartwell uses these folios as building blocks to develop custom global portfolios using a core/satellite strategy. Delfeld was a U.S. Representative to the Asian Development Bank and a consultant to the U.S. Treasury. He is a columnist for Forbes Asia, editor of ChartwellETF.com and author of "Think Global, Grow Rich", "The New Global Investor" and "ETF Investing Around the World".

For more information about ETF Harmony and ETFfolios as well as media inquiries, contact Carl Delfeld at 719.264.1503 or at cdelfeld@comcast.net

Irish and Malaysian ETFs Buffeted by Political Winds

By Carl Delfeld of the Chartwell ETF Advisor and Chartwell Partners Asset Management

News from Ireland (IRL) and Malaysia (EWM) underscore the need to take politics into consideration when deciding what country exchange-traded are right for your global ETF portfolio. Malaysia and Ireland are part of Chartwell Partners managed Country ETF Rotation Folio.

Mr. Bertie Ahern unexpectedly announced this morning his resignation as Irish prime minister amid continuing questions surrounding his explanation of cash donations made to him while he was finance minister in the 1990s. Mr. Ahern, Ireland’s longest serving prime minister, denied that he had ever received a corrupt payment during his political career. Nevertheless, he said that he would tender his resignation to President Mary McAleese on May 6th just ahead of the Irish referendum on the European Union reform treaty.

Mr. Ahern was a key player in engineering Ireland's economic boom as well as the breakthrough peace deal in Northern Ireland.

In Malaysia, Prime Minister Abdullah Badawi position is weakening as members of his own cabinet are supporting an open contest for key leadership posts. His UMNO Party is facing an increasingly stiff challenge from opposition parties.

The dissent comes as the three opposition parties announced yesterday that they had agreed to form a formal coalition as a credible alternative to the government reports John Burton of the Financial Times. Mr. Abdullah last week persuaded Umno to delay party elections this year from August to December, but growing criticism from the party’s ranks is posing an increased threat to the prime minister.

This is not just inside baseball. Mr. Abdullah has led reforms that have helped Malaysia become a stellar performer. Capital controls and corruption have come down. Capital structures and costs are more transparent and efficient. Part of this is due to the 2004 reorganization of the state investment agency.

Some leading companies have also be restructured. Telekom Malaysia spun off its dynamic cellular assets and Malaysian Airline System cut bloated staff and unprofitable routes. The result is that the market is up 60% in dollar terms over the past two years, comfortably besting the MSCI Asia ex-Japan index and the dividend yield has improved from 1.9% in 2003 to an estimated 3.9% last year, according to Credit Suisse, while foreign ownership has almost doubled to 25% over the same period. Well done.

How will these new political developments affect these markets? Join the Chartwell ETF Advisor and find out.