ETFxray

Turkey ETF (TUR) a Good High Risk Bet

By Carl Delfeld of ETF Passport & Chartwell ETF

Turkish equity markets, which have been among the world’s top performers over the last year, hit some major bumps this week with the arrests over a recent coup plot and ongoing trouble in neighbor and longtime rival Greece spooked investors. The news sent the iShares MSCI Turkey ETF (TUR) sharply down and at $48.7, it has fallen 20% from its 2010 high of $58.5 2010 on February 1st.

This is reminder that emerging markets are not for the faint of heart and that politics in these markets matter a great deal.

But the flip side is that some of the best opportunities come when “blood is running in the streets” as Rothschild famously pointed out and this is why I have personally invested in the Turkish ETF (TUR) and why you might want to follow with a small bet of your own.

Turkey is not a fringe economy but the 16th largest GDP in the world with a strong banking and industrial sector. It is extraordinarily important in a strategic and security sense and is a powerhouse in the region. TUR was, even before its 20% haircut, one of the cheapest markets in the world and is now even more so.

The current political chaos is worrisome but not unprecedented. According to various sources, including the BBC and the Canadian Press, prosecutors interrogated quite a few military officials about alleged plans to destabilize the country by blowing up mosques and provoking Greece into shooting down a Turkish plane over the Aegean Sea in order to trigger a coup and topple the government. This is James Bond stuff writ large.

Ironically, just this week, the S&P upgraded Turkey's long-term foreign currency rating to BB from BB- and issued a positive outlook for the country, which suggests the likelihood of additional rating increases in the next year or two.

Coups are hardly unusual in the country; there have been four since 1960. And relations between the AK Party of Recep Tayyip Erdogan and the more secular military leadership are always tense.
Markets tend to prefer the AK Party, whose stewardship over the economy recently won the country's credit rating an upgrade from Standard & Poor's.

Risk Factor: very high, suggest a small position & 5% trailing stop loss.

Seek Value in Emerging Markets, Don't Chase Economic Growth

By Carl Delfeld of Chartwell ETF & ETF Passport

Looking for value, not chasing economic growth, is the key to successfully investing in emerging markets.

The Credit Suisse Global Investment Returns Yearbook, an annual research project from Elroy Dimson, Paul Marsh and Roy Staunton, three academics at London Business School.

This team has looked at data on emerging market performance started by the International Finance Corporation in 1981, and backdated it to 1975, they found that the correlation with the developed world has increased over time. Despite the wishful thinking that emerging markets have “decoupled” economically from the west, their markets are ever more coupled. There is no great diversification to be achieved by buying emerging markets.

Emerging markets have outperformed since 1987 but overall are in the red during a period that includes all the big Latin American and Asian crises of the 1990s. And of course they have outperformed over the past decade.

But this research indicates that economic growth does not seem to be the key driver of these markets. From 1900 to 2009, for the 19 countries for which they had continuous data, the academics found that the correlation between real growth in GDP per capita and stock market performance was actually slightly negative. Using all the data they could find, for 83 different national markets (over period of only a decade in some cases), they found that 99 per cent of changes in equity returns could be attributed to factors other than changes in GDP.

So arguments about economic prospects might be interesting, but for stock investors they are almost irrelevant.

The takeaway is that a “value” approach of investing in countries that have recently suffered weak growth – notably emerging markets as they came out of their crises – is by far the best strategy. As Sir Templeton aptly put it: “look for countries in miserable shape”

CYB a Nice Asymmetrical Bet

By Carl Delfeld of Chartwell ETF & ETF Passport

The WisdomTree Chinese Yuan ETF (CYB) is a nice asymmetrical bet for patient investors.

I agree with Goldman Sach’s Chief Economist Jim O’Neill that China may be poised to let its currency strengthen as much as 5 percent to slow the world’s third major economy. “I have a strong opinion that they’re close to moving the exchange rate,” O’Neill said in a telephone interview from London after China’s central bank told lenders on Feb. 12 to set aside larger reserves. “Something’s brewing. It could happen anytime.”

As much as the Chinese mandarins hate the appearance of caving to foreign pressure, I think the yuan will appreciate albeit modest against the US dollar.

They will do it for two reasons: 1) to help cool an overheated economy and help rebalance China’s economy, making it less dependent on exports and putting future growth on a more sustainable path and, 2) to avoid what could be far more damaging import tariffs from the US and Europe.

The Chinese peg of the Yuan to the USD at levels 40% below market values is an serves as an automatic tariff on all U.S. goods imported by Chinese companies. This puts U.S. companies at a big disadvantage to Chinese companies.

There is a growing realization that China as the third biggest economy worldwide and with labor cost structure far below America & Europe merits no further unfair advantage. Beijing is increasingly facing complaints about its currency from other emerging economies, which see an undervalued yuan as undercutting them in global markets.

The Wisdom Tree Dreyfus Chinese Yuan Fund (CYB) remains the best vehicle to position for this event. CYB is comprised primarily of U.S. government, corporate and treasury bonds; repurchase agreements; and short-term currency forwards. The fund seeks to achieve total returns reflective of both money market rates in China and changes in value of the Chinese yuan relative to the USD.

China allowed its currency to appreciate 21% in the three years after they replaced a pure dollar peg with a basket of currencies in July 2005, but has kept its currency pegged at about 6.83 per dollar since July 2008 to help sustain exports.

ETF Passport's Advisory Services Now Open to Individual Investors

(Boulder, CO) ETF Passport, the first global & emerging markets ETF advisory service for financial professionals has opened its doors to independent investors.

ETF Passport offers timely commentary and strategic advice, focus articles on specific countries and sectors, timely ETF picks and, most importantly, an actively managed global core and emerging market explore portfolios. Both these portfolios are long/short portfolios with the option of using inverse ETFs and higher than normal cash positions.

Members of ETF Passport receive email alerts when changes are made to the portfolios as well as lengthy bi-monthly reports full of interesting and useful updates on markets around the world as well as the ETFs that track them.

According to Managing Editor Carl Delfeld, “ETF Passport has been an excellent advisory service for advisors so we decided to open it up to individual investors who want to use ETFs to capture global and emerging market growth but need reasonably priced market intelligence and help in managing the risks that go hand in hand with investing in these markets”. Delfeld went on to comment that, “despite the recent pullback, the emerging market story is not over but buy and hold has clearly been a losing strategy”. ETF Passport's global core portfolio is up 76.3% since its inception on January 5, 2008.

To subscribe or for a recent sample of ETF Passport including portfolio performance and pricing, contact Carl at Carl@ETFpassport.com or at 719.264.1503.

Carl Delfeld, a Forbes Asia columnist, is a leading expert and frequent speaker on global investing and economic, financial and political trends in Asia and emerging markets. Carl is the author of four books on ETF global investing and his new book, Red White & Bold: The New American Century, offers a refreshing change from the pessimism on America so common in the media today.

And while the vast majority of commentators expected the Chinese economic and market boom to go on forever, Carl offered a provocative view in his “The Coming China Crisis” published in the fall 2009 issue of the prestigious International Economy magazine.

As someone who studied Japanese at Harvard University and at Sophia and Keio University in Tokyo, Japan, Carl’s views on “Can America Avoid Japan’s Fate?” is full of personal anecdotes and keen insight on why Japan’s stock market is trading at only 25% of its peak in 1989 and why America needs to heed the lessons learned.

Carl’s knowledge of Asian and emerging markets has been gained through stints as an advisor to the U.S. Congress and the U.S. Treasury, representing the U.S. on the executive board of directors of the Asian Development Bank in Manila, Philippines and as a vice president with Robert W. Baird opening new markets in Tokyo, Hong Kong and Sydney. He is also the founder of the Center for Economic Diplomacy.

February Emerging Markets Negative Flows at 60-Week High

By Carl Delfeld of Chartwell ETF & ETF Passport

According to Brad Durham of EPFR Global, the first full week of February proved a painful one for emerging markets equity funds and ETFs in general and the diversified Global Emerging Markets (GEM) Equity Funds in particular as investors pulled another $2.9 billion out of these funds, with $1.76 billion -- a 60 week high -- coming from the GEM Funds. Concerns about the possible spillover effects of Greece ’s fiscal crisis also hit High Yield Bond Funds: those tracked by EPFR Global posted their biggest weekly outflow since early 3Q08. 

Investors did keep faith with Global and US Bond Funds, extending their current inflow streaks to 43 and 58 straight weeks respectively, and committed nearly $700 million to Emerging Markets Bond Funds. They also committed fresh money to Japan Equity Funds.

With yields at record lows, cash continued to flow out of Money Market Funds despite the uncertain investment landscape. Redemptions during the week ending Feb. 10 totaled $9.62 billion, taking year-to-date outflows close to the $80 billion mark.

ETF Passport Portfolio Changes

By Carl Delfeld of ETF Passport

This morning, the ETF Passport portfolios were adjusted dropping the inverse emerging markets ETF (EUM) and going long Turkey (TUR), Brazil small cap (BRF) and South Korea (EWY). I also added the Chinese Yuan (CYB) in anticipation of some movement on this issue but even if I have to wait it is a beautiful asymmetrical position with minimum downside risk.

I also added the iShares S&P 100 ETF (IOO) which is a basket of the largest 100 companies in the world. It might surprise you that 12 of these companies are headquartered in emerging market countries. Although my Chartwell Global 30 has outperformed this index by a substantial margin since 2005, IOO remains one of my favorite ETFs and can be paired with the International Dividend Achievers ETF (PID) to nice effect.

Finally, I added small position to the nuclear power ETF (NLR) based on a nice sell off last week and the fact that the Obama Admin is spiking funding and guarantees. No surprise there since nuclear is the cleanest and greenest energy source and the backbone of China's and India's energy plan.

Interesting that the news of China's selloff of T notes in January did not impact TLT, TBF or TLT. Will have to watch this closely.  Foreign demand for US Treasury securities recorded a record drop in December as China purged some of its holdings of government debt, the US Treasury department said on Tuesday.
According to the FT, China sold $34.2bn in US Treasury securities during the month, leaving Japan as the biggest holder of government debt with $768.8bn. 

For a sample copy of ETF Passport, contact me at Carl@ETFpassport

Why Not Build Your Own ETF?

By Carl Delfeld of ETF Passport

Every morning at market opening I check the S&P 500, the Dow Jones Industrial, the MSCI Emerging Market index, Nasdaq and the Chartwell Global 30 to see how global markets are trending.

The Chartwell Global 30 - you probably haven’t heard of that one - yet.

In April 2005, I had an idea prompted by a question. Why do so many market mavens and pundits remain preoccupied with the Dow Jones Industrial Average? Sure, founded by Charles Dow in 1896, it has a distinguished and rich history but as a diversified basket of 30 large American multinational companies, why would people check all day long to see how the index was doing?

In addition, there is an exchange-traded fund or ETF that tracks the Dow Jones index called the Diamond Trust Series (DIA) allowing investors to access this basket of 30 companies in a convenient manner. The Diamond ETF has amassed over $9 billion in assets.

My thought was that if the Dow Jones Industrial basket of companies were largely multinationals with companies like McDonalds garnering 76% of their revenue from overseas markets, why limit the menu to only American companies? The Dow Jones link to the US economy was already tenuous, why not cut the knot and go global?

Thus was born the Chartwell Global 30 – a basket of 30 large companies with about half headquartered in America and the rest sprinkled around the globe. For simplicity, while the Dow is price-based weighted, the Chartwell Global 30 is equal weighted.

Like the Dow, I tried to get substantial diversification both by industry and geography. The Chartwell Global 30 is more actively managed than DIA as I select what companies are most attractive based on valuations while still maintaining good diversification. Currently, the sector breakdown is as follows: 13% consumer staples, 7% consumer discretionary, 13% medical, 8% basic materials, 7% computer/tech, 13% energy, 26% finance, and 7% transportation. The portfolio has a price to book of 1.9, a price to sales of 1.2 and a dividend yield of 2.04%.

The global approach allows me the flexibility to search for the best of breed in each category and oftentimes I pair an American company with an international firm. A couple of examples are JP Morgan Chase (JPM) with HSBC (HBC) and Novartis (NVS) with Pfizer (PFE).

As we approach the 5th anniversary of the Chartwell Global 30, it is time to take stock of its performance against the Dow Jones Industrial Average and the Diamond ETF that tracks it.

The numbers are encouraging, before any fees, the Chartwell Global 30 measured on the FOLIOfn platform, is up 39.19% since April 1, 2005 versus just 8.9% for the Diamond ETF (DIA).

In addition, it did even better against the ETF that tracks a basket of the largest 100 companies in the world, the S&P Global 100 (IOO). IOO is up only 5.09% since April 1, 2005.

Gentle reader, whether an investor or advisor, you too can build your own ETF.

Of course, the Chartwell Global 30 is not exactly an ETF because it doesn’t trade on an exchange so please do not call me for its ticker symbol just yet. It is also not exactly a fund since it is not registered with the SEC.

Still, some of my clients have happily invested in the Chartwell Global 30 (portfolio) and the dream of having $9 billion in it keeps my blood pumping. With innovative new ETF launching platforms like AdvisorShares up and running, my ticker symbol may not be far off.

Even better would be Maria Bartiromo cooing every morning, “……….the Chartwell Global 30 is up 1.2% this morning as global markets responded to….”

Now that would be something.

Delfeld Launches Center for Economic Diplomacy

Carl Delfeld has launched the Center for Economic Diplomacy with the mission of supporting policies and programs that help American companies grow with and export to global and emerging markets.

The only way out of America’s financial predicament is a combination of fiscal discipline and economic growth. Since consumption and government spending will have to be pared back, investment and exports have to fuel higher economic growth. A robust pickup in exports is the key and the target has to be fast growing countries in Asia and emerging markets. While exports account for 8% of US GDP, they account for 47% of Germany’s GDP and 15% of Japan’s GDP. There is definitely room for significant improvement.

The center’s initial efforts will be focused on three themes.

small & medium sized business – America’s large multinationals have the experience, skills and resources to penetrate emerging export markets. For example, Proctor & Gamble’s sales from emerging markets represent 32% of its $78 billion in annual revenue, up from 23% four years ago. Sales from emerging countries are doubling every four years.

But many smaller businesses need some help not to mention are America’s premier job engine. Research done by the Kauffman foundation shows 80% of jobs are created by firms started in the last five years. The Senate Small Business Committee reports that only 1% of America’s 26 million small businesses export at all but they surprisingly account for 29% of export volume. If we can get the participation rate to 5%, the impact export growth would be dramatic.

reform, reorganize and revolutionize trade initiatives – we need to think bigger and smarter on both trade deals and initiatives. While we are struggling with the Columbia trade pact, China and 10 Southeast Asian nations (ASEAN) began last month world’s third-largest free trade area that will remove tariffs on 90% of traded goods. Trade between China and ASEAN members has soared to $192.5 billion in 2008, from $59.6 billion in 2003.

America’s patchwork of trade-related agencies and departments is far too bureaucratic and slow moving – undercutting the leverage we have as the world’s largest consumer market. Some examples are that the government-backed Overseas Private Investment Corp. (OPIC) is still financially supporting funds that invest in foreign emerging market companies, the Department of State needs to be able to bring in more staff with international executive experience, SBA programs should provide ample incentives for small business to pursue overseas markets.

from euro-centric to emerging markets – our attention and resources need to be much more focused on emerging markets since all indications are that this is where global growth with be centered.

Carl Delfeld, Forbes Asia columnist and president of Chartwell Partners , is one of America’s leading experts on global investing and economic, financial and political trends in Asia and emerging markets. His new book Red White & Bold: The New American Century offers a refreshing change from the pessimism on America so common in the media today.

Carl handled trade and Asian financial issues with the U.S. Senate Finance Committee and the Joint Economic Committee. He was also a consultant to the U.S. Treasury before representing the U.S. on the executive board of directors of the Asian Development Bank in Manila, Philippines during the administration of George H.W. Bush. From this post, Carl led investment missions throughout Asia and helped American businesses penetrate new markets. Carl also opened new markets in Tokyo, Hong Kong and Sydney while a vice president with Robert Baird & Co. and covered Japan and South Korea for Bank of Boston after serving in its London Branch.

For more information, please go to the Center for Economic Diplomacy which is actively seeking partnerships and seed capital.

ETF Passport Long/Short Portfolios Weather Global Pullback

(Boulder, CO) Chartwell Partners has launched ETF Passport, the first global & emerging markets ETF advisory service squarely aimed at both financial professionals and sophisticated independent investors.

ETF Passport offers timely commentary and strategic advice, focus articles on specific countries and sectors, timely ETF picks and, most importantly, live global alpha core and emerging market explore model portfolios. Both these portfolios are long/short portfolios with the option of using inverse ETFs and higher than normal cash positions.

Members of ETF Passport receive email alerts when changes are made to the portfolios as well as lengthy bi-monthly reports full of interesting and useful updates on markets around the world as well as the ETFs that track them.

According to Chartwell president Carl Delfeld, “ETF Passport is for advisors and investors who want to use ETFs to capture global and emerging market growth but need market intelligence and help in managing the risks that go hand in hand with investing in these markets”. Delfeld went on to comment that, “despite the recent pullback, the emerging market story is not over but buy and hold has clearly been a losing strategy”.

For a recent sample of ETF Passport including portfolio performance and pricing, contact Carl at Carl@ETFpassport.com or at 719.264.1503.

Chartwell Partners is an ETF global and emerging markets specialist. Carl Delfeld, a Forbes Asia columnist, is a leading expert and frequent speaker on global investing and economic, financial and political trends in Asia and emerging markets. His new book Red White & Bold: The New American Century offers a refreshing change from the pessimism on America so common in the media today.

And while the vast majority of commentators expected the Chinese economic and market boom to go on forever, Carl offered a provocative view in his “The Coming China Crisis” published in the fall 2009 issue of the prestigious International Economy magazine.

As someone who studied Japanese at Harvard University and at Sophia and Keio University in Tokyo, Japan, Carl’s views on “Can America Avoid Japan’s Fate?” is full of personal anecdotes and keen insight on why Japan’s stock market is trading at only 25% of its peak in 1989 and why America needs to heed the lessons learned.

Carl’s knowledge of Asian and emerging markets has been gained through stints as an advisor to the U.S. Congress and the U.S. Treasury, representing the U.S. on the executive board of directors of the Asian Development Bank in Manila, Philippines and as a vice president with Robert W. Baird opening new markets in Tokyo, Hong Kong and Sydney.

Emerging Global Advisors Sums Up Tough Week for Markets

By Carl Delfeld of Chartwell ETF and ETF Passport

Global Shares reports this morning that The Dow Jones Emerging Markets Composite Index fell by 2.31% last week on concerns that several key countries such as China have become overheated and central banks will take further steps to slow economic by raising interest rates. Health Care and Telecom, down 0.82% and 1.24% respectively, were the least negative of the sectors. 

Technology and Materials, two of the best performing groups in 2009, were the worst performing last week, down 4.91% and 4.26% respectively. As the global debate about how central banks should handle monetary policy continues, the spotlight will be on the U.S. this week when the Obama administration announces a plan to control the booming fiscal deficit.