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Emerging Market ETFs Suffer Record Outflows

By Carl Delfeld of Chartwell ETF & ETFfolio

Yesterday, emerging markets were up almost 2% but for most of this year it has been much more comfortable for investors to be in the ProShares Emerging Market inverse ETF (EUM) rather than the iShares MSCI Emerging Market (EEM) ETF.

Outflows from emerging markets bond and equity funds and ETFs reached $29.5bn over the past three months, the highest level since at least 1995. Investors are rushing to the exits. Weaker commodity prices, inflationary pressures, a stronger dollar and geopolitical concerns all weighed on emerging markets not to mention slowing global growth and turmoil in banking markets.

Investors switched $1bn out of equity and fixed income funds on Monday, one of the highest daily outflows since records began in 1995, said EPFR Global, the data provider. Last week there were outflows of $1.6bn, bringing the total since June 4th to $29.5bn, the largest three-month figure since 1995.

David Lubin, emerging market strategist at Citigroup, said: “Emerging market asset prices rose strongly in a world of rapid growth and high commodity prices, creating something like a virtuous circle.

“Now we’re faced with the risk that this process is unwinding. The strength of the dollar has put emerging economies’ currencies under pressure just at the point where a rise in global risk aversion is pushing investors away from exposure to developing countries.”

The benchmark MSCI emerging market index has fallen 22% over past three months. David Oakley of the FT notes that the hardest hit stock markets in dollar terms are Ukraine, which has fallen 59% this year in part on geopolitical worries; China, down 57%, Hungary, down 49% and Vietnam, down 46% due to a combination of sharply lower growth and skyrocketing inflation.

For the first eight months of 2008, though, the emerging-markets index (EEM) was down 22.7%, and Europe, Australia and Far East (EFA) index of 23 well-developed countries is down 17%, compared to the S&P 500 index down 11.4%, and the Dow Jones Wilshire 5000 losing 10.3%.

Russia's benchmark RTS index is down a staggering 46% since its its May 19th peak.

Chartwell Offers Luxury Investment Tour of Singapore, Malaysia and Thailand

Chartwell Partners Asset Management is offering global investors a luxury investment tour of Singapore, Malaysia and Thailand. While five years ago, many analysts believed that Southeast Asian markets would be in trouble due to intense competition from China, the region has thrived and offers investors a great play on Asian growth. The tour is called "Investing Along the Orient Express" because it includes a journey from Singapore to Bangkok aboard the historic Eastern & Oriental Express.

The goal of the trip is to learn more about investing in this dynamic region together with enjoying its fascinating culture and sites. Chartwell Managing Director Carl Delfeld stated that he planned the tour in response to many requests at investment conferences. "After I would speak about global investing opportunities and strategies, there would always be several investors asking if they could travel with me to learn first hand about places like Southeast Asia. Now they have the chance."

Debbie O'Brien-Director of Sales, Orient-Express Hotels, Trains & Cruises noted that "they look forward to the Chartwell investor group joining the Eastern & Oriental Express as part of this creative and memorable tour of Singapore, Malaysia and Thailand. From the exciting mix of Chinese, Indian and Malay architecture and cuisine in Singapore to the glittering Thai temples of Bangkok, this journey embraces the great cultures, spiritual tranquility and mystery for which South East Asia is renowned. Welcome aboard!!"

The investment tour will be from January 26th through February 2nd 2009 and will begin 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 and Indonesia, which have been steady performers.

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. Lunch is served in one of the opulent dining cars. Dress for dinner and then spend a relaxing evening in the Bar Car in the company of our resident pianist.

During the evening, the E&O arrives at Kuala Lumpur's magnificent Moorish-style station where we will pause before departing for our 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 where the morning briefings and investment activities will center on Thailand and Vietnam.

Your guide for "Investing Along the Orient Express" is Carl Delfeld. In addition to being Managing Director of Chartwell Partners, Carl is a columnist at Forbes Asia, was a U.S. Representative to the Asian Development Bank, a U.S. Treasury consultant, global strategist for New England Research & Management and author of three books about global investing.

For further information and a brochure with pricing, please call 719.264.1503. This investment tour is limited to 25 investors so secure your reservation at your earliest convenience.

Chartwell Introduces Emerging Market ETFfolio

Chartwell Partners Asset Management has launched another folio, called the Emerging Markets ETFfolio. The Emerging Markets ETFfolio is managed by Chartwell on FOLIOfn's online brokerage platform.

Emerging markets such as China, India, Russia and Brazil have attracted considerable media attention over the past several years due to both their rapid economic growth and booming stock markets, but the risks to investing in these markets is also significant.

"Financial information on specific emerging market companies is not always provided on a timely and reliable basis, so investing in a basket of securities through exchange-traded funds makes sense," according to Chartwell Managing Director Carl Delfeld.

Delfeld also believes that a diversified ETF folio blending a variety of emerging market countries is a better approach than concentrating on just India and China. For example, Delfeld suggests that countries such as Malaysia, Taiwan and Thailand offer investors an "indirect play on Chinese and Asian growth." The Emerging Markets ETFfolio may also provide investors limited exposure to difficult-to-get-at markets such as smaller emerging market companies and frontier markets.

In selecting and weighting emerging market ETFs for the Emerging Markets ETFfolio, Chartwell considers relative valuations, momentum, macro economic factors and even political developments. Delfeld believes that "chasing momentum without considering value and other important factors is usually a losing strategy over time."

Delfeld explained that FOLIOfn was the ideal platform for managing the Emerging Markets ETFfolio since it "offers the ability to buy and sell in fractional shares and allows for the rebalancing of the folio in a single low cost transaction."

Greg Vigrass, President of FOLIOfn Institutional, commented: "Using FOLIOfn's Institutional platform, Chartwell is able to actualize the entire investment process, including their portfolio construction and distribution, as well as the ongoing management associated with their offer. We are very pleased to provide the venue by which Carl Delfeld can make these innovative investment offerings to the public."

The Emerging Markets ETFfolio will join the other ETFfolios that are available to investors and investment advisors through Chartwell Partners on the FOLIOfn platform. These include the:

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
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 and media inquiries, contact Carl Delfeld at 719.264.1503.

Potential Frontier ETFs?

By Carl Delfeld of the Chartwell ETF Advisor

I am always getting calls from investors wondering when there will be an exchange-traded fund for markets like Nairobi, Vietnam, Mongolia, Jordan or Kuwait. Regulatory hurdles are one issue and another is the liquidity and company concentration in particular markets.

To put things into perspective, here is some data on overseas stock markets courtesy of Portfolio magazine.

London Stock Exchange
Opened in 1801
3,301 listed companies
$4 trillion market cap

Tokyo Stock Exchange
Opened in 1878
2,422 listed companies
$4.7 trillion market cap

Kuwait Stock Exchange
Opened in 1963
190 listed companies
$106 billion market cap

Nairobi Stock Exchange
Opened in 1954
58 listed companies
$10.7 billion market cap

Tehran Stock Exchange
Opened in 1967
332 listed companies
$32 billion market cap

Hong Kong Stock Exchange
Opened in 1914
1,206 listed companies
$2.2 trillion market cap

Kathmandu Stock Exchange
Opened in 1994
134 listed companies
$2.8 billion market cap

New York Stock Exchange
Opened in 1792
3,617 listed companies
$16.2 trillion market cap

But I think I know what is driving the phone calls. The Kuwait exchange is up 486% over the last five years, Nairobi up 400% and Kathmandu is up 216% while the Dow is up 50% and the FTSE 100 up 42% over the same period.

To stay on top of new ETFs for your global portfolio, go to Chartwell ETF.

Big 2007 Winner Was Emerging Market ETFs

By Carl Delfeld of the Chartwell ETF Advisor

What can we learn from where investors put their money in markets around the world and the exchange-traded funds that track them during 2007?

The last week of the year saw some cash flow out of Money Market, Europe Equity and US Bond Funds and ETFs and into Energy Sector, US, Global and Global Emerging Markets Equity Funds acording to fund flow data from EPFR Global. Equity markets around the world rebounded from the previous week’s sharp drops and energy prices resumed their climb.

While the latest flows tracked by EPFR Global into US Equity Funds and ETFs pushed them into positive territory for the year, it did nothing to change the story for 2007: a massive rotation out of funds geared to developed markets into those geared to – or, in the case of Global Equity Funds, with some exposure to – emerging markets. Net flows into the GEM and Latin America Equity Funds and ETFs tracked weekly by EPFR Global were 361% and 305% of their 2006 totals while combined flows for Japan and Europe Equity Funds and ETFs were $63.7 billion lower than the previous year’s total.

At the country level Russia Country Funds such as (RSX) extended their winning run to 16 straight weeks and Brazil Country Funds and ETFs (EWZ) closed the books on a year that saw them post inflows that were nearly six times their 2006 total. But investors continued booking the profits generated by China’s frothy equity markets, with China Country Funds such as (FXI) and (GXC) are again seeing outflows despite their 75% collective portfolio gain for the year.

To use this useful data in building your ETF global portfolios, go to Chartwell ETF.

IBM Shifts Focus to Emerging Markets

By Carl Delfeld of the Chartwell ETF Advisor

IBM, a bit behind the curve, announced that it is ramping up focus on emerging markets that investors are already investing actively in through exchange-traded funds. This is a significant change in thinking for a firm that has always focused on traditional markets.

IBM is set to spend $1.6bn over the next three years as its hunt for growth takes it to smaller markets in the emerging world that have not previously been a focus of its efforts, according to an internal memo from its chief executive and described by Richard Waters of the FT.

The attempt to tap a wider range of developing countries comes as IBM’s earlier investment in three big markets which already have ETFs - Brazil (EWZ), India (IIF) and China (GXC) – has started to pay off.

Though still only a small part of its total revenues, business in these countries accounted for a quarter of IBM’s growth last year and plays an important part in the longer-term financial goals that Sam Palmisano has set.

In an e-mail to senior management, the IBM executive wrote of “a significant shift in our approach to the global marketplace” as the company sought to organise itself to deal with opportunities outside its normal scope. “Too often in the past, because we’ve built our plans by starting with our traditional markets, we haven’t focused sharply enough on the opportunities being generated elsewhere,” Mr Palmisano wrote.

Will China and India Close the Science Gap?

By Carl Delfeld of the Chartwell ETF Advisor

China and India comfortably led the world in scientific exploits before the 15th century. China surpassed Europe in its understanding of chemicals, industry and shipbuilding while India leapt ahead in mathematical ingenuity.

Why did they both lose their steam? And now that they have regained their mojo, what impact will technology have on their economies and stockmarkets tracked by exchange-traded funds like the iShares China (FXI) and the Morgan Stanley India (IIF) and China (CAF) funds?

A great article in the Economist by Simon Cox addresses this issue and what the furure might hold. In his book “The Lever of Riches”, Joel Mokyr settles on a simple explanation for China's technological stagnation: the country's imperial state lost interest. Its purposes were better served by continuity than by progress, and there was no rival source of power and patronage to pick up the threads it dropped. Roddam Narasimha of India's National Institute of Advanced Studies reaches a similar conclusion for India. “Up to the 18th century, the East in general was strong and prosperous, the status quo was comfortable, and there was no great internal pressure to change the global order,” he writes.

Ironically, while one out of every three software engineers in the world are Indian, India has only 24 personal computers for every 1,000 people, and fewer than three broadband connections. China has impressive numbers in terms of budgets and educating engineers and such but some question whether the quality of product is world class. Nevertheless, it presses on and by 2020, China aims to spend a bigger share of its GDP on research and development (R&D) than the European Union.

An unexpected twist of the tale may be that the challenge presented by the rise of India and China will lead to America, far from complacent, to redouible its efforts and maintain its lead. Keep in mind that all the Nobel prizes for science went to Americans in 2006.

If you happen to live in the Los Angeles area, I will be speaking this evening at 6:30 PM at the Pierpont Inn in Ventura on building a global ETF portfolio.

Emerging Market FDI Soaring with ETFs

By Carl Delfeld of the Chartwell ETF Advisor

It has been a tough week for emerging market exchange-traded funds like Brazil (EWZ), South Afruca (EZA) and Taiwan (EWT) but investors can take some solace that investment and FDI flows rremain robust.

The $1.21 billion that investors steered into emerging market funds and ETFs took year-to-date inflows up to $13.5 billion, over three times the full-year total for 2006.

Richard Gnodde, Co-CEO of Goldman Sachs International points out in the FT that Since 1990, cross-border capital flows have grown more than 10 per cent annually. Over that period, capital inflows to emerging markets have grown twice as fast as inflows to developed countries. Investment flowing to developing countries now accounts for nearly half of world total FDI inflows, compared with only 20 per cent in 1990. Even excluding China, the share doubled to 32 per cent.

A good example of this trend is the recent Industrial and Commercial Bank of China ’s $5.5bn investment in 20 per cent of Standard Bank of South Africa. It is the largest-ever overseas investment by a Chinese company, it is also the largest foreign direct investment in Africa.

While emerging markets are still somewhat tied to Europe and America, the trade and investment flows between emerging market countries are growing faster and should cushion any blow from any economic slowdown.

Emerging Markets Continue to Attract Fund Flows

By Carl Delfeld of the Chartwell ETF Advisor

Emerging markets and the exchange-traded funds that track them continue to attract sizable flows from big global money managers. According to EPFR Global, For the fourth week in a row the diversified global emerging market equity funds and ETFs posted the biggest inflows of any major equity fund group.

The $1.21 billion that investors steered into these funds took year-to-date inflows up to $13.5 billion, over three times the full-year total for 2006. Asia ex-Japan funds and ETFs also absorbed over $1 billion despite posting a collective portfolio loss of 3.96%, the worst showing among the major emerging markets fund groups, and have now taken in 115% of last year’s record-setting inflows.

Once again investors gravitated towards the larger emerging economies. Inflows into Brazil, Korea, China, Greater China and Russia Country Funds totaled $878 million while BRIC equity funds took in another $480.6 million. That represented 56% of the week’s net inflows into all emerging markets funds, up from 30.5% the previous week. With oil prices testing the $100 a barrel mark Russia Country Funds turned in the fourth best weekly performance among pure country funds behind energy major Saudi Arabia (+9.59%), Indonesia (+4.96%) and Vietnam (+1.62%).

One large emerging market that did not fare well was Mexico, which paid for its tight integration with the US economy as investors pulled the equivalent of 7.48% of their beginning of the week assets under management from Mexico Country Funds. That weighed on Latin America Equity Funds, which took in $105 million, well below their year-to-date weekly average of $225 million. EMEA Equity Funds also posted modest inflows.

“Investors globally have been gravitating to the sounder economic and fiscal story that emerging markets represents, but the ever-weakening dollar, if it turns into a destabilizing rout, could even damage the current rosy sentiment of investors towards emerging markets,” says Brad Durham, a managing director of EPFR Global.

Find out which emerging market ETFs should be in your portfolio by joining the Chartwell ETF Advisor.

Templeton's Mobius Cautions on Emerging Markets

Carl Delfeld of the Chartwell ETF Advisor

Emerging markets and the exchange-traded funds that track them may be vulnerable to the impact of the sub-prime problems according to a leader in emerging market investments.

“The biggest worry now is the psychological impact – and I emphasise psychological impact – of subprime,” Mr Mobius told FT.com in the website’s inaugural “View from the Markets” weekly video interview.

“I think a lot of people are focused on that and maybe have over-emphasised the impact of subprime.

“There’s no clear evidence that consumer spending is slowing down in America ... But now that it’s so much in the news it may have an impact on people’s propensity to invest. And so that could be a problem.”

Nevertheless, he said, some US investors were realising anew the value of diversification into developing countries. “[They] see emerging market currencies getting stronger against the US dollar, they see economies growing at a much faster pace – stronger than the US or Japan.”

Learn how to build a balanced global ETF portfolio by joining the Chartwell ETF Advisor