ETF XRAY

Finally, Some New Country ETFs From Barclays

I first became intrigued with exchange-traded funds when I saw the line up of country-specific ETFs on Barclays iShares menu. There are now 23 country ETFs including two that track the Japanese market.
My waiting for more country ETFs seems to have ended last week as an SEC filing listed the following ETFs in the pipeline: iShares MSCI BRIC Index Fund, iShares MSCI Chile Index Fund, iShares MSCI Israel Index Fund, iShares MSCI Thailand Index Fund and a iShares MSCI Turkey Index Fund. These are welcome but were certainly not at the top of my wish list. What about Ireland, Norway and Denmark?

Thailand is interesting as it has been the best market in Asia and is also still one of the world's cheapest. I have also gotten quite a bit of calls asking about turkey. Israel is a technology center that packs a punch way beyond its weight. Chile is a wonderful success story and the star of Latin America not to mention an excellent play on copper.

Many purists are scornful of the country ETFs since they tend to be dominated by a few big multinationals and also are increasingly less dependent of their domestic economy. I accept that they are a hybrid; part play on global growth and part play on the home economy. The emerging market country ETFs (There are seven of them) are more centered on their country's economy. Plus, studies have shown that where a company has its primary listing and the perception of its home economy does impact stock prices.

Regardless, I find it continually fascinating to buy a county's stock market with just a click of the mouse.

By Carl Delfeld of the Chartwell ETF Advisor

British Pound Breaking $2 Level Will Impact ETF

The British pound today broke through the $2 mark for the first time in nearly 15 years and a good question is what impact this will have on the UK exchange-traded fund (EWU). Traders may have been reacting to new data that showed an unexpected surge in inflation, prompting speculation of interest rate increases.

While a rising currency helps the performance of foreign country iShares ETFs since they are not hedged against the U.S. dollar, rising rates usually hurt a stock market because it leads to slower economic growth.

However, there are times when increasing rates are seen as a positve for markets since it signals responsible monetary management to stem inflationary pressures.

Jane Wardell writes that the rising CPI rate, well above the Bank of England's target of 2 percent, adds pressure for a further rise in official interest rates, which are currently at 5.25 percent. The bank has raised the base rate by three-quarters of a point since August and economists had been predicting one more rise in the coming months to close off the current cycle of increases -- but the data has prompted speculation about more than one hike.

Another way to play the rising British Pound is through the CurrencyShares British Pound (FXB) ETF.

By Carl Delfeld of the Chartwell ETF Advisor

Emerging Market ETF Trails World Index

After a stellar 2006, the exchange-traded fund or ETF that tracks the MSCI Emerging Markets Index (EEM) has risen 2.9 per cent, compared with 3.76 per cent for the MSCI World Index. Investor inflows into emerging market funds remain strong but have slowed from the stellar pace seen at the start of last year. They have also pulled back from the China and the China ETF (FXI) which was up 84% last year. China accounted for as much as 50% of the net flows into emerging market funds and ETFs for parts of last year.

It appears that investors are becoming more conservative and broadening their bets into countries like Singapore, Malaysia and South Korea which have a higher credit quality but still offer a play on Chinese and Asian led growth. The slowdown in India markets this year is also a factor in weaker overall emerging market returns.

By Carl Delfeld of the Chartwell ETF Advisor

Mega Caps a Drag on UK ETF

By Carl Delfeld of the Chartwell ETF Advisor

While the United Kingdom exchange-traded fund or ETF (EWU) has been doing quite well and the FTSE 100 is at a six-year high, it has been weighed down by the lackluster performance of its mega cap stocks. The twelve largest companies in the index account for a surprising 54% of the index. These dozen companies have underperformed the overall index this year by 6.8%.

The Financial Times reported that Citigroup research also highlights that the valuations of big companies are falling behind smaller companies. Europe's 50 largest companies trade at about 12 times forward earnings versus 14 times for large caps and 16 times for mid caps. In 2000, the valuations were reversed.

One explanation is that global investors do not appreciate the stability of earnings from the mega companies in the current risk taking environment and also the role of M&A and private equity which is centered on smaller companies.

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.

Swiss ETF Packs a Punch

When building your global ETF portfolio, do you think of Switzerland as just a quaint staid tourist country with great chocolate and fine watches? Or as another example of “Old Europe” with high taxes and big government which stifles economic growth? Think again. The Swiss ETF is a regular position in some of Chartwell ETF Advisor’s model ETF portfolios. Here’s why.  

For starters, Switzerland is home to four of the largest five firms in Europe in terms of market capitalization: UBS, Nestle, Novartis, and Roche. It also has the highest per capita income in the world. While only 137 miles by 216 miles in size with a population of 7.2 million,
Switzerland packs a punch and is a financial and multinational powerhouse. Let’s take a quick look at the asset side of Switzerland’s balance sheet.

It has a strong currency backed by ample gold reserves, fiscal discipline, trade surplus and very little foreign debt. Outward looking, Switzerland has 40% of its GDP attributed to exports. Switzerland represents the third largest financial center in the world after New York and London. It is also home to world-beating pharmaceutical, engineering and food companies.

When investing in the Switzerland exchange traded fund (ETF), (EWL) you’re investing in quality, strength and stability.