Mega Cap ETFs Clobbered by Global Slowdown

By Carl Delfeld of Chartwell ETF and ETFfolio

Last week was a particularly rough week for global markets and the mega cap stocks that make ETFs like the iShares S&P Global 100 Index ETF (IOO), which is comprised of 100 large cap (average $10 billion) multinational companies that are selected based on the firm’s percentage of foreign assets, revenues, and employees. IOO is split about evenly between US and international companies and represents a simple, low-cost vehicle to gain global exposure with a click of your mouse.

We may not technically be in a global recession but GDP growth projections are coming down pretty much across the board on a daily basis. European companies and Japan are suffering just as much if not more than the US as growth and profit numbers mirror the weakness in global consumer demand.

While the S&P 500 and the Dow lost about 3% last week, European ETFs lost about 6.8%; Asia fell about 6.5% and Latin America gave up 9.2%. Having a fair amount in cash, trading more actively and allocating limited assets to inverse ETFs has led to the Chartwell World Country ETF Rotation being down about 4.9% year-to-to date.

Bill Luby writing in Seeking Alpha points out that the weekly chart of IOO highlights the deterioration in the global equity picture which accelerated dramatically this week, with stocks falling through technical support and bringing the IOO back to levels not seen since July 2006. If IOO cannot hold the 2006 support level of 61.00, then another even uglier leg down is certainly a distinct possibility.

On the other hand, this sharp pullback may provide tough investors with a great opportunity to build positions in some great companies.