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Rating Performance in the World of ETFs

I am a believer in accountability, therefore I'd like to revisit the investments I have written about on RealMoney.

A couple have worked out well; a couple have not. Nothing has blown up, but then, ETFs can't really drop 30% overnight.

My very first article in September was about the iShares MSCI Austria Fund (EWO), and my very first email from a reader flamed me because he thought the Austria play was already played out.

Austrian banks are a prime source of financing for the expanding economies of Eastern Europe, and public pension money goes into the Austrian stock market on a regular basis.

I felt that the ETF could be a less volatile proxy for emerging markets.

The ETF has performed quite well, and I believe the underlying reasons to invest in it remain in force.

The closest I have come to a hideous blowup is Iceland . When I wrote about it at the beginning of February, the risks included a hot stock market and currency, inflation concerns and its deficit. They all hit the fan at the same time and took the benchmark ICEX 15 Index down 12% from the time of my article, and 20% from its high. Similarly, the krona is down a little over 20% in the same time period, a huge move for a currency.

There are clearly still problems, but the country isn't going to go out of business. I still view Iceland as a viable long-term theme. My exposure remains quite limited, as is appropriate in case everything hits the fan at once again.

A stinker with a lot less drama was my article about Chile in December. I recommended The Chile Fund (CH), Banco Santander Chile (SAN)and Banco de Chile (BCH - Get Report). Since then, all three have fallen about 5%, while the S&P 500 is up roughly 4%.

What Chile has going for it is a bull market in copper and the fact that, as in Austria, public pension money goes into the stock market on a regular basis. Copper prices have gone up a lot and could be subject to a correction, but the demand for the metal remains quite healthy.

In October I suggested that the iShares MSCI Taiwan Index Fund (EWT) offered a way to gain foreign exposure to the tech sector. The idea makes sense if you want foreign exposure for your portfolio in general terms but also if the dollar falls.

From October to December, the dollar rallied, as measured by the Dollar Index, and so the ETF lagged domestic tech stocks, as measured by iShares Dow Jones U.S. Technology Sector Index Fund (IYW).

Pulling Out of a Tie
EWT pulls ahead of the iShares Dow Jones U.S. Tech Index Fund

However, in the past few months the dollar has sold off, and the Taiwan fund has outperformed the U.S. tech fund. Both are tightly correlated. It is a reasonable bet that this trend will continue if the dollar continues to weaken.

One of the most innovative ETFs to come out in recent months has been The PowerShares Water Resources Portfolio (PHO). Water is a resource with finite supply and growing demand -- demand has grown twice as fast as the population over the last 100 years.

The fund came out of the gate strongly, rising 22% from its $15 debut price on Dec. 6.

Wet and Wild
The PowerShares Water Resources Portfolio (PHO) has outperformed the Industrial SPDR (XLI)

I likened the water fund to the industrial sector but thought it might outperform, and that has been the case so far. I don't believe anything has changed for the long term, but I would be surprised if it rose another 22% over the next five months.

The most popular article I've written, based on the response from readers, was about the PowerShares WilderHill Clean Energy Portfolio (PBW). Since I wrote about it at the beginning of March , it has tracked the Energy Select Sector SPDR Fund (XLE) very closely. Over the last year, it is up 70% vs. 40% for the energy SPDR. It is likely to continue to do well as long as energy remains strong.
At the time of publication, Nusbaum was long iShares MSCI Austria, iShares Dow Jones U.S. Technology Sector Index Fund, Banco Santander Chile, The PowerShares Water Resources Portfolio and iShares MSCI Austria in client accounts, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, Ariz., and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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PBW $4.11 -1.20%
BCH $65.30 -0.14%
CH $6.50 0.31%
SAN $5.02 -2.80%
PHO $22.90 -0.87%


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