The bulk of my personal funds are in exchange-traded funds (ETFs) because I’m so busy running a trio of investment services that I don’t have time to manage individual stocks for my own portfolio.
The good news is that my money is stepping out in fine style, and it’s doing so on the cheap. After all, I favor ETFs with low expense ratios.
But you can’t base your ETF investing decisions solely on expense ratios. Potential performance is equally important. That’s why I gave you my 2007 forecast for the various U.S. stock market sectors. Of course, you should no longer feel bound to just U.S. markets, either.
Once, international investing was very difficult to pull off. Now, however, you can join a formerly exclusive club for only a few bucks a share. That’s because there are extraordinary ETF opportunities that allow you to invest overseas.
According to Morgan Stanley, the amount of money in global ETF funds should hit about $2 trillion within five years. That’s quadruple the current amount. And it gives you a sense of just how popular investing overseas is becoming.
Will Foreign Markets Trump
The U.S. Again in 2007?
For my money, the real outperforming countries are those in emerging markets — places outside the G-10 group of developed nations. That shouldn’t come as a surprise to subscribers of my Red-Hot Asian Tigers service. We’re already seeing big gains on stocks that operate around the Pacific Rim.
If you want to buy an ETF that holds a group of emerging market stocks, you have lots of choices. Three of them are the iShares MSCI Emerging Markets (EEM), BLDRS Emerging Markets 50 ADR (ADRE), and the Vanguard Emerging Markets ETF (VWO).
Man, have these funds been kicking butt! Look at my chart comparing the Vanguard Emerging Markets ETF (VWO) to the S&P 500.
Both are up significantly for the year, but VWO has really shined in the last few months! However, you can also see that it was more volatile than the S&P 500. Emerging markets can experience wild whipsaws – keep that in mind if you decide to buy one.
Over a longer period of time, foreign ETFs have still outpaced the S&P 500. Look at this chart showing the performance of the iShares MSCI Emerging Markets ETF (EEM) vs. the S&P 500.
You’ll see that while the S&P 500 has managed a 20% return over two years, the EEM has clocked returns approaching 80%! Wow!
Why are emerging markets outperforming? Here are some of the reasons …
- The commodities supercycle: We have enjoyed about five years of rip-roaring commodity prices, and I believe we have at least another ten to go. That is heating up the performance of emerging markets because these countries “feed†hungry nations like India and China.
- Economic transformation: China’s retail sales surged 14.1% in November compared to a year earlier. China, India and other nations are undergoing a transformation from the world’s back-door factories to mighty consumer-oriented nations in their own right. And they have BILLIONS of people.
- Earnings growth: Since companies in emerging markets are tapping into the commodities boom and hordes of new consumers, their earnings growth can be phenomenal.
And, let me tell you, I expect these trends to continue for a while. But what if you want to get even more specific and invest in just a single country? Great news:
Country-Specific ETFs
Let You Get As Focused
As You Want …
These days, you can buy an ETF that targets anything from Hong Kong (EWH) to Switzerland (EWL).
If you like China, there are two Chinese ETFs to choose from. Are there real differences between them? You bet! I explain what they are in my special report, “ETFs Made Easy.†Of course, the smarties behind ETF Power Trader certainly have a favorite China ETF – they’ve ridden it to some serious gains already!
In the past, India was one Asian giant that was difficult for Americans to invest in. The closest thing we had to an ETF was the India Fund (IFN) mutual fund.
But just last week, Barclays launched an exchange-traded note (very similar to an ETF) that trades on the New York Stock Exchange under the symbol “INP.†It’s called the iPath MSCI India ETN, and it’s linked to the MSCI India Total Return Index, which contains the 68 largest Indian companies (in terms of market capitalization) on the National Stock Exchange of India.
PowerShares, another fund family, is also launching an India ETF. But their fund tracks 18 Indian companies already trading here in the US. So, in my book, that doesn’t make it much better than the India fund.
That brings up an important point: Make sure you know the components of any ETF you buy. One of the nice things about ETFs is they offer you instant diversity in a single share. But it’s also possible for an ETF to have too much of its money concentrated in a few stocks. Buyer beware!
There’s one last fund family offering foreign ETFs that I want to mention today. The company is called WisdomTree, and they take a dividend-focused approach to foreign investing. Some of their fund offerings are the WisdomTree International Dividend Top 100 Fund (DOO), the WisdomTree Japan SmallCap Dividend Fund (DFJ), and the WisdomTree International MidCap Dividend Fund (DIM). These ETFs put an interesting twist on things.
If you find all this a bit confusing, you might want to check out my report, “ETFs Made Easy.†It explains the difference between Barclays iShares, PowerShares, and the other major fund families. And, hey, even if you’re comfortable making your own ETF picks, it doesn’t hurt to have a handy reference guide filled with useful tips.
Or, if you want real outperformance with ETFs, you should also check out ETF Power Trader. You can find out more by clicking here or calling 1-800-393-1706. As part of signing up, you’ll get my ETF special report for free!
I hope you had a great year investing in 2006 … and my best wishes for even more success in 2007.
Yours for trading profits,
Sean Brodrick
P.S. Remember to check out my blog at http://redhotresources.blogspot.com/
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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