This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Have Resource-Rich Country ETFs Lost Their Appeal?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

Editor's note: The following article was originally published on Thursday, July 7.

NEW YORK ( ETF Expert) -- With a variety of benchmark ETFs hitting multiyear highs on July 7 -- Powershares Nasdaq 100 (QQQ), iShares Russell 2000 (IWM), iShares DJ Transports (IYT) -- investors have placed the May-June swoon in their rear view.

What's more, economically sensitive sectors like tech and consumer discretionary are leading the charge. In fact, some analysts believe that the momentum in cyclicals is a clear sign that the U.S. economy will accelerate in the second half of the year.

There are other theories, however. Some believe that -- economic warts and all -- U.S. stocks may be the best house on the equity block.

For example, Jeremy Siegel, co-founder of WisdomTree and author of Stocks For The Long Run, contends that U.S. stocks are more attractive today than he's ever seen them. He bases his belief on the fact that, when interest rates are in a low to middle-interest rate range, the average historical price-to-earnings ratio is 19. With the S&P 500 trading near 14 (less than the 50-year average of 15), U.S. stock assets may be especially enticing.

> > Bull or Bear? Vote in Our Poll

I'm not sure I "buy" the good professor's assessment. For one thing, slicing 50 years of data into rate environments of "low-medium" and "medium-high" may only consider 25 years for each category. That's a narrow window. Meanwhile, if we're talking about an average P/E of 19 in a span of just 25 years ("low-to-medium" interest rates), the deviation around the mean would be far greater than over a 100-year span. And that makes it even more difficult to be confident in the attractiveness of an entry point.

Nevertheless, there may be something to Spiegel's theory. A number of country ETFs sport P/E ratios that are similar to U.S stock ETFs. And, those countries have "medium-to-high" interest rates today. Following the professor's logic, the P/Es of these international ETFs are not low enough when compared with U.S. stock ETFs.

Whether it's about the P/Es, interest rates, both, or a variety of factors, foreign stock ETFs are lagging in 2011. Moreover, the ETFs with the least momentum tend to be rich in natural resources.

Following are some examples:
  • Market Vectors Russia(RSX) has an approximate one-month return of 3.1% and an approximate six-month return of 1.9%
  • iShares MSCI South Africa(EZA) has an approximate one-month return of 2.9% and an approximate six-month return of 0.2%
  • iShares MSCI Canada(EWC) has an approximate one-month return of 2.8% and an approximate six-month return of 4.1%
  • iShares MSCI Australia(EWA) has an approximate one-month return of 2.1% and an approximate six-month return of 7.1%
  • iShares MSCI Brazil(EWZ) has an approximate one-month return of 1.8% and an approximate six-month return of -3.8%.
  • By contrast, the S&P 500 SPDR Trust(SPY) has an approximate one-month return of 5.6% and an approximate six-month return of 7.1%.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
EWC $23.49 -0.04%
EWA $18.12 1.90%
RSX $15.76 0.90%
EZA $55.74 2.70%
EWZ $23.67 -0.25%

Markets

Chart of I:DJI
DOW 16,257.01 +198.66 1.24%
S&P 500 1,930.24 +16.39 0.86%
NASDAQ 4,693.2030 +57.0980 1.23%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs