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.

Chartwell ETF Announces Investment Tour of Singapore, Malaysia and Thailand

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

Five years ago, many analysts believed that Southeast Asian markets would be in trouble due to intense competition from China. However, as I predicted, the region has thrived and offers investors a great play on Asian growth.

Isn’t it about time you learn more about this dynamic and fascinating region? Join me on a luxury adventure from Singapore through Kuala Lumpur to Penang and then on to Bangkok from January 26th to February 3rd, 2009.

Travel in style aboard the historic Eastern & Oriental Express and enjoy all the sites and culture of Southeast Asia while also learning more about the region’s investment opportunities. Our adventure begins with three days in Singapore at the Raffles Hotel. After interesting economic, company and regional investment briefings from experts plus a visit to places like the Singapore Stock Exchange during the mornings, enjoy flexible touring options such as cruises, sightseeing or sporting activities in the afternoons and evenings. One morning will be dedicated to Malaysia which has been a steady performer.

On the fourth day, the Eastern & Oriental Express departs Singapore’s Keppel Road station in the morning. Having been welcomed onboard the gleaming carriages, settle into your luxury cabin and, if you wish, meet interesting people from all over the world. Enjoy the passing scenery as the train crosses to Malaysia via the causeway of the Straits of Johor.

The E&O will pause at Kuala Lumpur’s magnificent Moorish-style station before departing for an overnight journey towards Bangkok with side trips to the island of Penang and the River Kwai. Our home for three days in Bangkok will be the prestigious Oriental. Throughout our trip, we will schedule investment-oriented activities in the mornings allowing you the freedom during afternoons and evenings.

The tour is limited to 25 investors. For more information, go to Chartwell ETF or contact Carl Delfeld at 719.264.1503.

Claymore Launches EAFE Country Rotation ETF

Claymore in partnership with Zacks has launched a country rotation exchange-traded fund that poses a challenge to the most popular international index and ETF, the iShares MSCI Europe, Australia and Far East Index (EFA).

The Claymore/Zacks Country Rotation ETF (CRO) seeks to track the Zacks Country Rotation index comprisesed of stocks selected from a universe of international companies based in countries included in the MSCI EAFE Index and Canada, with the exclusion of companies based in Greece. The companies in the universe are selected using a proprietary methodology developed by Zacks Investment Research.

The EFA exchange-traded fund weights countries in the index by the market value of their respective stock market. Therefore, Japan and the United Kingdom account for 46% of the exposure in the ETF basket.

One flaw in the new Claymore/Zacks ETF is that it excludes all of the fast growing and top performing emerging market countries. Emerging market countries account for 85% of the world’s population, 25% of global economic output and represent 50% of 2007 economic growth. Compared to only a few years ago, many of these countries have higher foreign exchange reserves, lower foreign debt, lower inflation, higher credit ratings and have as a group achieved average economic growth rates of 7.7% during the last four years.

The Chartwell World Country ETF Rotation Portfolio includes thirty two developed and emerging market countries with the goal of exceeding the performance of the MSCI World index. This portfolio weights country specific ETFs using a momentum based model with a valuation check while maintaining some flexibility to act on special opportunities.

By Carl Delfeld of the Chartwell ETF Advisor

PowerShares Announces Four New International ETFs

On June 25, 2007 PowerShares family of exchnage-traded funds will launch the first wave of PowerShares FTSE RAFI International Portfolios, which use a fundamental approach to select and weight companies in the index. The funds anticipated to launch are:

PXF PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio
PAF PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio
PEF PowerShares FTSE RAFI Europe Portfolio
PJO PowerShares FTSE RAFI Japan Portfolio

Similar to the approach used by industry professionals, companies are weighted not simply by a single measure such as market-capitalization, dividends or earnings, but rather by the size of their fundamentals. Companies are selected based on the following four fundamental measures of size: sales, cash flow, book value and dividends.

The indexes on which the portfolios are based utilize an investable, liquid universe of more than 2,000 global equities that span more than 20 countries. These indexes are designed to track the performance of some of the largest global region or country-specific equities.

Posted by Carl Delfeld of the Chartwell ETF Advisor which offers investors seven model ETF portfolios including an International, Global and Asian Opportunity portfolio.

A Weak Dollar Helps Foreign Country ETFs

How do changes in the value affect US companies and US exchange-traded funds? It is not as straight forward as it looks. First, a falling dollar raises the dollar value of foreign sales. Big US multinationals receive roughly half of their total sales from overseas. For S&P  500 companies it is about 30 per cent of their sales overseas compared with 15 per cent for smaller companies in the Russell 2000) When the dollar weakens, the value of those sales grows. Hence international “mega-cap” companies, laggards for years, have recently outperformed. A weak dollar im­proves the case for big US stocks.

But as John Authers points out, globalization also affects costs and the proportion of costs a company deducts from revenue to determine profitability. Plus, look at Europe, the stronger euro has not hurt their share prices even though they are even more international in terms of sales than most American firms.

One of the reasons European and Asian ETFs are doing so well this year is the stronger Euro and stronger Asian currencies with the Japanese yen being the primary exception. Remember, international ETFs are not hedged against the US dollar so a weaker dollar will help their returns.

By Carl Delfeld of the Chartwell ETF Advisor

SPDR DJ Wilshire Intl Real Estate (RWX)

State Street Global Advisors (SSgA)*, the investment management arm of State Street Corporation today announced that assets in the SPDR(SM) DJ Wilshire International Real Estate ETF (AMEX: RWX) have reached $500 million. It is the first ETF to provide investors with access to global real estate securities publicly-traded outside the US.

"A number of catalysts appear to be driving investor demand for international real estate exposure, including a very low correlation to the broader US and international equity markets," said James Ross, senior managing director of SSgA. "The significant inflows into the SPDR DJ Wilshire International Real Estate RWX ETF indicate that investors have quickly embraced this offering as a vehicle to gain more precise exposure to the global markets."

Launched on December 19, 2006, the SPDR(SM) DJ Wilshire International Real Estate ETF has emerged as the fastest growing ETF listed in the US during the past six months. As of March 7, assets under management in the fund totaled approximately $500 million.**

** Source: SSgA Strategy & Research as of March 7, 2007

DE Smith of MyPortfolioView

State Street's New International ETFs

State Street has introduced two new exchange-traded funds; one an all world ex-US ETF and one targeting international small cap companies in developed countries.

A press release from the company describes the SPDR S&P International Small Cap ETF (GWX) includes companies with market caps under $2 billion domiciled in developed countries outside the U.S. and carries a 0.60% expense ratio. The SPDR S&P World ex-US ETF (GWL) includes more than 5,000 companies domiciled in developed countries outside the U.S. including Canada and carries a 0.35% expense ratio.

The two new ETFs will begin trading on April 26th.

With the launch of these two SPDRs, State Street’s family of US-listed ETFs features 53 funds – including a full suite of 16 that offer precise access to international and emerging markets. State Street manages more than $114 billion of ETF assets worldwide (as of March 31, 2007) and is one of the largest providers in the US and globally, with a market share of nearly 20 percent

By Carl Delfeld of the Chartwell ETF Advisor

Don't Forget SPDR International ETFs

Don't neglect State Street Global Advisors' (SSGA) six new SPDRs emerging markets exchange-traded funds or ETFs that are listed on the American Stock Exchange (Amex). The funds are based upon the S&P/Citigroup Global Equity Indices and will carry expense ratios of 0.60 percent. At of the end of February 2007, State Street managed more than $109 billion ETF assets in a total of 76 ETFs worldwide.

Here are the ETFs with a brief description.

SPDR S&P Emerging Markets ETF (GMM)
Index includes more than 1,500 companies across 26 emerging countries.

SPDR S&P Emerging Latin America ETF (GML)
Index includes companies domiciled in Argentina, Brazil, Chile, Columbia, Mexico, Peru, and Venezuela.

SPDR S&P Emerging Middle East & Africa ETF (GAF)
Index includes companies domiciled in Egypt, Israel, Jordan, Morocco, Nigeria, and South Africa.

SPDR S&P Emerging Europe ETF (GUR)
Index features companies in countries that are nearing acceptance into the EU, including Czech Republic, Hungary, Poland, Russia, and Turkey.

SPDR S&P Emerging Asia Pacific ETF (GMF)
Index includes companies domiciled in China, India, Indonesia, Malaysia, Pakistan, the Philippines, Taiwan, and Thailand.

SPDR S&P China ETF (GXC)
Underlying index includes over 150 companies domiciled in China.

By Carl Delfeld of the Chartwell ETF Advisor

Strong Pound, Euro Buoy ETFs

A strong pound and euro this week have helped European exchange-traded funds continue their robust performance and both currencies are likely to get stronger with more interest rates hikes expected this summer.

The Financial Times reported that the European Central Bank is firmly expected to raise its main rate by a quarter point to 4 per cent in June. The euro hit a succession of two-year highs against the dollar this week. And the minutes from the Bank of England's monetary policy committee meeting earlier in the month suggested that an interest rate increase to 5.5 per cent in May was all but a done deal.

Against the backdrop of steady economic activity in Europe is the anticipation that the next move by the Fed will be to lower interest rates. This will widen the gap and likely sent the euro and pound higher. Remember that country-specific ETFs are not hedged against the dollar. The UK exchange-traded fund is (EWU) and a good proxy for the overall European markets is the iShares S&P Europe 350 (IEV).

By Carl Delfeld of the Chartwell ETF Advisor

World's Most Competitve Country ETFs

In picking country exchange-traded funds for your global ETF portfolio, you might wish to take into consideration competitive rankings like the one put out by the World Economic Forum.

Its report ranks countries on the following criteria: macroeconomy, institutions, technology readiness, infrastructure, health and primary educatiobn, higher education and training, markets and innovation.

Here are the latest rankings and the ETF that tracks the countries market:

1) Switzerland (EWL)
2) Finland
3) Sweden (EWD)
4) Denmark
5) Singapore (EWS)
6) USA (IYY)
7) Japan (EWJ)
8) Germany (EWG)
9) Netherlands (EWN)
10) U.K. (EWU)
11) Hong Kong (EWH)

By Carl Delfeld of the Chartwell ETF Advisor

ETF Global Fund Data Points to Caution

Flows into most EPFR-tracked equity fund and exchange-traded fund groups during the second week of April were, with the notable exception of Global and Western European equity funds, modest at best as investors worrieded about the outlook for the US and global economy. Steady flows continued into Emerging Market equity funds and ETFs, taking year to date flows back into positive territory, while US equity funds and ETFRs lost money for the third time in the last four weeks. Investors continue to favor global utilities and real estate ETFs while retreating from energy and technology ETFs. Investors are becoming a bit more conservative but still maintain strong but more focused interest in emerging market ETFs and seem to putting more emphasis on value.

Global equity funds and ETFs have been the big winner this year. These funds benefited from their large exposure to Western Europe, where several of the major equity markets are at or around six-year highs as investors respond to mergers and acquisitions activity and the perception that economic growth in the region will exceed previous forecasts.

Direct China exposure is falling back while Japan equity funds and ETFs were hit by redemptions for the fifth time in the past six weeks. I have noticed that in particular, the small cap sector has been hit hard recently. Investors seem to be holding their fire until they see a more sustained rebound in consumer confidence. This may be an opportunity because the vast majority of large Japanese companies are not tied to the Japanese home market but rather to the global economy.

By Carl Delfeld of the Chartwell ETF Advisor

Country ETFs with Momentum

One important trend to look at when selecting ETFs for your global ETF portfolios is momentum. What ETFs are showing strength. Then you can look at value to see if they match up.

If we look at the iShares country ETF performance over the last 30 days, here are the leaders.

Malaysia (EWM) up 11.84%
South Africa (EZA) up 10.47%
Australia (EWA) up 10.23%
Brazil (EWZ) up 10.13%
Netherlands (EWN) up 10.1%

The only country ETF down is Japan (EWJ) which has lost 1.43% during the last 30 days.

By Carl Delfeld of the Chartwell ETF Advisor

Multinationals Lead Country ETFs

Look into any country-specific exchange-traded fund and you will see that the the companies in the ETF basket are large multinationals. And though the names might not be too familiar to many American investors, multinationals from emerging market countries are growing fast. The Economist has an excellent article on the evolution and current competition between global companies.

So far this year, Indian firms, led by Hindalco and Tata Steel, have bought some 34 foreign companies for a combined $10.7 billion. Indian IT-services companies such as Infosys, Tata Consultancy Services and Wipro are putting the fear of God into the old guard, including Accenture and even mighty IBM. But the established Western multinationals have some key advanages as well. First there is size, then there are skills, such as managing relations with customers, polishing brands, building up know-how and fostering innovation. Plus, many Western multinationals are already rapidly expanding into emerging countries to co-opt talent and cost advantages. IBM now has over 50,000 employees in India and ambitious plans for further expansion.

Some country ETFs such as South Korea (EWY) and Sweden (EWD) have as much as 25% of their basket allocated to one company. Make sure you do an ETFXRAY on the company before investing in the ETF.

By Carl Delfeld of the Chartwell ETF Advisor

International ETFs: Risks vs. Rewards

There are three main reasons for the popularity of international ETFs. 1. Alpha. 2. Diversity 3. Volatility.

1. POSITIVE ALPHA. Alpha is a measure of market out performance. There is no question that these funds have returned plenty of positive alpha. In the last few years returns in foreign funds have been phenomenal- particularly emerging markets. The benchmark iShares MSCI Emerging Market Index (AMEX:EEM) since its inception in 2003 is up over 200%. And the diversified iShares EAFE Index (AMEX:EFA), the highest volume international ETF after iShares Japan (AMEX:EWJ) has doubled. The benchmark the iShares S&P Latin American 40 Index (AMEX:ILF) is up 300%.

2. DIVERSITY. The second main reason for investing in international ETFs is portfolio diversity. Diversity concerns the performance correlation of assets. A diverse portfolio holds uncorrelated assets. International ETFs have made possible a range of trading and investment strategies that might have once been theoretical possible but practically impossible now very possible, and easy to execute. International ETFs have really brought the possibility of an internationally diversified portfolio into the mainstream.

3. VOLATILITY. The third main reason for the popularity of international investment is lower overall portfolio volatility. The diversity implied by international investment has historically provided investors with protection from market risk. Recently however, especially during market downturns international ETFs have shown to be highly correlated with domestic funds. Overall they have failed to reduce portfolio volatility. Last summer for example as the U.S. markets fell, dropping a quick 5% from May 10th to May 22nd, the DAX dropped 10%. From mid-May to mid-June the domestic SPY dropped about 10%, but EEM tumbled 35%. The Chinese iShares FTSE/Xinhua China 25 Index (NYSE:FXI) fell 17.5%. Though most of the international funds had already recovered by the end of summer, traders were hurt by the highly correlated, highly efficient selling.

Whether or not the trend to correlation continues, there are certainly risks involved with international investment. But this does not mean that investors should not own an internationally diversified portfolio. In fact, most U.S. investors are not adequately diversified internationally. While specific international allocations will certainly depend on the goals of an individual investor, I like to recommend that 30% of an investor's equity allocation be international. The funds mentioned above are a good place to start.

Read the complete article written By Jonathan Bernstein, ETFzone Trading Specialist

Record Global Growth Propels Global ETFs

Lawrence Summers notes that the world economy in aggregate grew more during the past five years than in any five-year period since the second world war. Martin Wolf comments in a Financial Times column that "growth is not merely strong. It is also widely shared. In 2006, according to the World Bank’s Global Economic Prospects, the economies of the high-income countries probably grew by 3.1 per cent, with the US achieving 3.2 per cent, Japan 2.9 per cent and even the sluggish eurozone 2.4 per cent. Meanwhile, the economies of the developing countries, led by the rising giants, China and India, expanded by 7.0 per cent, after 6.6 per cent in 2005 and 7.2 per cent in 2004."

Wolf goes on to highlight that this remarkable period of growth has occurred in spite of significant economic and political shocks: the collapse of the stock market bubble in 2000, the terrorist attacks of September 11 2001, wars in Afghanistan and Iraq, the continued uncertainty about future large-scale terrorism, the jump in oil prices, protectionist rhetoric in a number of high-income economies and a breakdown in the trade talks.

The best performing global sector ETFs during the last 12 months have been Global Telecoms (IXP) up 36%, Global Materials (MXI) up 33% and S&P Global Utilities (JXI) up 30%.

More Country ETFs On the Way?

One of the most popular groups of exchange-traded funds or ETFs are the country-specific ETFs offered by iShares. The ability to invest in a country's like Malaysia (EWM), Australia (EWA), Brazil (EWZ) or Switzerland (EWL) with a click of a mouse is fascinating. But with the exception of the China ETF (FXI), there has been no additions to the 19 other countries that iShares has offered for over a couple of years.

I for one would love to see an ETF tracking the Scandinavian countries such as Norway, Finland and Denmark, all of these markets have done well and have nice competitive advantages. Why not an ETF tracking the OMX Copenhagen 20 index which is a basket of the twenty most active stocks on the Copenhagen exchange? An ETF covering the region of Eastern Europe would also be welcome as well as countries like New Zealand and Indonesia.

One aspect of these country ETFs that investors need to watch is the concentration of the top weighted companies. Since the iShares ETFs are weighted by market value, it can lead to a few companies to dominate performance. For example, Ericsson and Samsung account for 22% of the Sweden (EWD) and South Korea (EWY) ETFs and the top three companies in the Austrian ETF (EWO) account for almost half of the ETRF basket. Let us know country ETFs you would like to see on the market and we will pass this on to iShares.

By Carl Delfeld of the Chartwell ETF Advisor

Emerging Markets ETF (EEM) XRAY

iShares MSCI Emerging Index Fund (EEM) in review. A quick glimpse at the Point and Figure chart one of this Emerging Index Fund EEM one can’t help but notice the obvious GROWTH. Currently EEM is trading at $117 well above its bullish support line [the red diagonal line]. Notice in the chart we’ve highlighted each January [1] for the purpose of comparing each of the last three years. According to the chart 2004 saw 18% growth. 2005 gained nearly 40%, and in 2006 EEM moved up the chart 26%. The only significant reversal from demand to supply came in May 2006 with a 25% fall from its high of $110 hit in May 2006. Since the low in June 2006 this Emerging Markets ETF has moved up 44% to its present position of $117.72.

By DE Smith of MyPortfolioView

E*Trade Unlocks Foreign-listed ETFs

A pilot project by E*Trade which begins with 1,000 E-Trade customers this week, allows them to buy, hold and sell ETFs, closed-ended ETFs and stocks in Canada, France, Germany, Hong Kong, Japan and Britain. The rollout is expected to take two months before all customers have access, and could one day expand to 42 international markets.

There is a growing number of ETFs that are not currently listed on U.S. exchanges that ETF investors will now have better access to and at lower costs. Up to now, ETF investors had to call brokers and accept commission fees that topped $100. E-Trade will charge a $20 commission, and also give customers the ability to move U.S. dollar accounts into foreign currencies. The ability to keep the commission low is because E-Trade already has operations set up in 15 countries where customers have access to both local and U.S. stocks.

Wells Fargo recently introduced a plan where 100 ETF trades a year are free and Bank of America offers free trades for investors that maintain a reasonable balance. We are probably not far off from free global brokerage services on all the major exchanges in the world.

By Carl Delfeld of the Chartwell ETF Advisor

Stronger EU and ETF Growth Prospects

European ETFs may benefit from higher than expected economic growth as George Parker of the Financial Times reported that Europe’s economy is heading for another bumper year, with 2.7 per cent growth, according to upgraded forecasts published on Friday by the European Union’s monetary affairs commissioner.

The forecasts were increased amid signs that Germany’s VAT increase on January 1 has failed seriously to dent growth, encouraging signals from the US and new evidence that inflation is under control.

Spain (EWP) and Poland are leading the way among Europe’s big economies, although Germany (EWG) and Italy (EWI) both look set to finish 2007 more strongly than previously expected.

Only France, with growth projected at 2.2 per cent, and the Netherlands, at 2.8 per cent, had their forecasts downgraded.

Global Diplomacy and ETFs

Exchange-traded funds or ETFs are not just about economics and business but global power politics as well. This is especially true for country ETFs like China (FXI), India (IFN) and Russia (in the works).

Tomorrow, China, Russia and Indian foreign ministers will hold a summit in India to discuss who knows what. This is their first trilateral meeting and follows Mr. Putin's sharp criticism of the United States earlier this week. On Thursday, Li Zhaoxing, China's foreign minister heads to Japan to meet with his counterpart Taro Aso. One topic will surely be issues related to the expected visit to Japan by China's premier Wen Jiabao in April 2007.

Meanwhile, tension between Taiwan and China is heightened by Taiwan (EWT) pulling the "China" label from several state-owned companies.

Netherlands ETF Led By ING

By Carl Delfeld of the Chartwell ETF Advisor

It is easy to tap into in this global corporate vigor through the Netherlands iShare (EWN) that contains a basket of 27 Dutch companies. The global financial services firm ING accounts for 18% of the basket. ING has a dominant position in growing Asian markets such as China, India and Thailand and its direct bank now has 15 million customers worldwide. 50% of its profits come from insurance operations and since European and American markets are rather mature, it’s strategy is to continue to diversify geographically and move into higher growth areas such as retirement services. ING is a low cost provider resulting in an ROE in 2005 of 24% though the relatively high debt load is a concern.  

The next four highest weighted companies in this ETF are all top quality: ABN Amro, Phillips Electronics, Unilever and Aegon. In terms of sectors, diversified financials account for 18% of the basket, food, beverage and tobacco is 13%, banks, 13% and consumer durables 10%.

The Netherlands stock market is undervalued with its AEX index trading at a price earnings ratio of 12 times earnings. And as Lynnley Browning of the New York Times reported over the weekend, the Netherlands has also emerged as a tax haven for high end intellectual property investors.

Posted in Blogroll,  Europe,  International ETFs,  ETF Current News. No Comments »

Indonesian ETF (IF) Pullback

By Carl Delfeld of the Chartwell ETF Advisor

Even as the largest Muslim country in the world with over 300 million people, Indonesia is often off the radar screen of most global investors.

This is unfortunate since the Indonesian closed-ended ETF (IF) was supercharged in 2006 with the ETF share price up 104%. Since the beginning of the year it has pulled back from its 52 week high of $12.77 to settle today at $11.11. (IF) trades at a 19% premium to its net asset value and its largest holding is Indonesia Telecom which accounts for 23% of the ETF’s holdings.  

Rich in natural resources, Indonesia has evolved from an authoritarian, centralized regime to a democratic government with elaborate checks and balances. An article in the Economist discusses the sore feelings of military leaders who have lost some power and perks but Indonesians though disappointed with President Yudhoyono’s over-cautious style but believe him to be an honest man who is trying his best. The President’s personal approval rating was 67%, which is higher than the share of the vote that won him the presidency three years ago. Mr. Yudhoyono’s term is not up until 2009 and his likely successor is his vice-president, Jusuf Kalla.

ADRA Breaks Through Bearish Resistance

BLDRS Asia 50 ADR Index Fund is a unit investment trust designed to provide investment results that correspond generally, before fees and expenses, to the price and yield performance of the publicly-traded depositary receipts comprising The Bank of New York Asia 50 ADR Index. There is no assurance that the performance of the BLDRS Asia 50 ADR Index Fund can be fully matched to its corresponding Index.

Daily Global ETF Update

February 2nd, 2007

By Carl Delfeld of the Chartwell ETF Advisor

On Thursday the major domestic ETFs were flat while emerging market ETFs showed strength. The South Korea ETF (EWY) was up 2.62% which is more that it was up during the past year. Samsung makes up 23% of this ETF basket. Mexico (EWW) was up 1.95%, Hong Kong (EWH) up 1.89%, Singapore (EWS) up 1.62% and Brazil (EWZ) up 1.57%.

China has been getting more than 50% of new equity flows to emerging markets and fund managers were probably looking to broaden their positions in Asia and Latin America. While the Internet Infrastructure HOLDRS (IIH) was up 1.8%, the B2B Internet HOLDRS was down 1.29% highlighting that investors need to know what’s in the basket of specialty sector ETFs. Commodity and energy ETFs were generally down for the day continuing the rather volatile back and forth in these markets set since the beginning of the year.

For the month of January, mid-caps ETFs outperformed large- and small-cap ETFs.  Malaysia (EWM) was the strongest country ETF up 11% and China (FXI) which was up 84% during 2006 was down 7%.  Latin America, Europe and domestic markets were up a modest 1%.

Oil and energy ETFs began the month sharply down as oil prices fell below $50 and then staged a recovery to be down 3-7% while metals were up 3-7% with the Silver ETF (SLV) making a comeback.  Healthcare and biotech were up over 3%; transportation ETFs buoyed by stronger than expected GDP growth were up 8% and despite all the hand wringing over the housing and construction slump, real estate ETFs were up 9%.

Is the India ETF Overheating?

By Carl Delfeld of the Chartwell ETF Advisor

India’s economy and the India closed-ended ETF (IIF) has been on a hot streak. Is the ETF’s sparkling performance sustainable?

An article in the current Economist points out that India’s real GDP grew by 9.2% in the year to last September. Over the past four years it has increased at an average annual pace of more than 8%, compared with around 6% in the 1980s and 1990s.

Prices and inflation are also moving upward. Wholesale-price inflation has risen to 6%, which is above the 5.5% upper limit set by the Reserve Bank of India (RBI). The article also highlights that industry capacity utilization is higher than at any time in the past decade and severe skill shortages have caused wages and salaries to rocket – and not just for software engineers. The RBI is also concerned about a credit boom with bank lending to firms and households has expanded by 30% over the past year. Lending on commercial property is up by 84% and home mortgages by 32%. Asset prices look out of control. India’s stockmarket also looks frothy after rising more than fourfold over the past four years. India’s stockmarket is one of the emerging world’s most expensive, with a price-earnings ratio of more than 20. House prices in many big cities have more than doubled over the past two years.

In short, investors should be careful jumping in at this point and use a stop loss to lock in gains and limit downside. Protect yourself from the inevitable market pullback.

SPDR DJ Wilshire International Real Estate ETF (RWX)

New International Real Estate ETF has been one of our most viewed posts so here is a little more on SPDR DJ Wilshire International Real Estate ETF (RWX). The Funds Objective according to their fact sheet is to closely match the returns and characteristics of the total return performance of the Dow Jones Wilshire Ex-US Real Estate Securities Index (ticker: DWXRS), an equity index based upon the global (ex-US) real estate market.

Country Weights

Australia 19.97%                     Spain 1.41%    

United Kingdom 19.01%         Switzerland 1.09%    

Japan 17.93%                         Germany 1.03%    

Hong Kong 8.03%                   Italy 0.80%    

Canada 7.02%                        Belgium 0.68%    

France 5.49%                         South Africa 0.54%    

Netherlands 5.34%                 New Zealand 0.53%    

Singapore 5.01%                    Thailand 0.04%    

Austria 4.36%                          Unassigned 0.02%    

Sweden 1.70%

New Global Real Estate ETF

It used to be that the Chartwell ETF Advisor had to use mutual funds for exposure to  global real estate markets but now investors have an ETF option.

The new ETF (RWX) tracks the Dow Jones Wilshire International Real Estate index and is sponsored by Boston-based State Street Global Advisors. The ETF has an annual expense ration of only 0.60% and invests in real estate stocks in both emerging and more developed internationmal markets.

It currently holds about 140 stocks and companies in the ETF need to have a market cap of at least $200 million and at least 75% of the company’s revenue must come from real estate operations. The average market cap of companies in the ETF are now $2.8 billion. Investors now have a cost effective tool for tapping real estate markets outside the U.S. whcih account for more than 50% of global real estate values.   

Marie Beerens of the IBD offers more information of this welcome new addition to the ETF world.

Investment Flows to Global ETFs Set Record

Cambridge, Massachusetts-based Emerging Portfolio Fund Research, Inc. (EPFR) tracks equity and bond fund flows, cross border capital flows, country and sector allocations, and company holdings data from its universe of 15,000 international, emerging markets and US funds with $7 trillion in assets Global Equity funds and ETFs have also had a year to remember: the $29.7 billion that flowed into these mutual funds and ETFs representing a 51% increase over 2005 and marks the third straight year these funds have posted a record for inflows.

It is clear that global investors continued to seek more global exposure in 2006. Combining the funds that report weekly with those that report only monthly to EPFR, total inflows into all non US equity fund groups (including Global, Emerging Markets, Europe, Japan, and Pacific region funds) amounted to an estimated $116.5 billion in 2006, compared to US Equity Funds that sustained net outflows of $15.9 billion. Europe Equity Funds and ETFs also had a strong performance and the value of the assets under management by these funds grew by 72% to $270.3 billion in the course of the year.

Japan equity funds and ETFs suffered their eighth straight week of net outflows, thereby keeping this fund group on course to post net outflows for the first time since 2002. Asia ex-Japan funds and ETFs were again the stars among the emerging markets fund groups, taking in $635.9 million in fresh money of which flows into China Equity Funds accounted for more than half.  

At the sector level the big winners were Global Energy and Global Financial Funds, with actively managed Global Real Estate Funds seeing the biggest redemptions. Exchange Traded Funds (ETFs) accounted for 95% and 93% of the inflows recorded by Global Energy and Financial Sector Funds respectively. Collectively the sector funds pulled in a net $10.4 billion. Two ETFs that track these markets are the S&P Global Energy (IXC) ETF and the S&P Global Financials (IXG) ETF. For more information on global ETFs, you may wish to visit the ETF Library.