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.
NEW YORK (ETF Expert) -- Motivational speakers frequently explain that the Chinese word for "crisis" or "wei-ji," represents a combination of "danger" ("wei-xian") and "opportunity" ("ji-hui"). That said, how much opportunity can be found in crisis after catastrophe after calamity?
For instance, the PIGS (Portugal, Italy, Greece, Spain) have been responsible for staggering levels of market volatility for 24 months. Time and again, one or more of these debt-laden countries have caused conditions many market watchers would describe as chaotic.
Indeed, I have made sure to have negligible direct exposure to European equities for at least the last two years. Even when a number of credible experts began suggesting that enhanced Eurozone coordination in recent weeks has reduced risks, there has been scant evidence for the containment of rising debt yields.Actually, it gets worse than that. It's one thing to watch the Italian yield curve invert and discuss the unsustainable path for Italy with a 7.4% 10-year note. It's another thing to recognize that the costs of intra-bank lending via increasing three-month LIBOR rates and the inability of banks to use government bonds as collateral are creating a liquidity crunch. (Review, "3 Reasons Why Stock ETF Investors Must Tread Lightly.") In other words, just when we thought that U.S. recession risks were fading, investors have to consider the implications of a recession in Europe. Similarly, just when we thought that the recent earnings season had demonstrated the flexibility and sustainability of corporations in the world environment, investors may have to factor in which companies might be the most damaged by European unrest. While skyrocketing Italian bond yields will send Eurozone policymakers back to the drawing board, the year-to-date results for the S&P 500 aren't all bad. The benchmark remains 12% above the closing lows of October; moreover, the SPDR S&P 500 Trust (SPY) is only down about 1% with dividends reinvested. Perhaps the question isn't whether the next "euro-plan" will send the Dow up or down 350 points. Instead, investors may need to recognize that the ETFs which lose less during a two-year crisis (and counting) create more profitable opportunities than other asset choices. Here, then, are the percentage returns for a variety of risk assets -- for Wednesday, 11/9 and for the prior two years:
|Losing Less "Key" To Better 2-Year Returns|
|Italian Bond Crisis||2 Years|
|JP Morgan Emerging Market Debt (PCY)||-0.50%||19.48%|
|PowerShares High Yield Corporate Bond (PHB)||-0.77%||18.34%|
|JP Morgan Alerian MLP Note (AMJ)||-2.06%||54.67%|
|Select Sector SPDRs Utilities (XLU)||-2.18%||26.59%|
|First Trust Morningstar Dividend (FDL)||-2.23%||32.99%|
|Vanguard Consumer Staples (VDC)||-2.30%||24.41%|
|SPDR Pharmaceuticals (XPH)||-2.68%||36.00%|
|S&P 500 SPDR Trust (SPY)||-3.69%||16.58%|
|iShares MSCI All World (ACWI)||-4.49%||2.79%|
|Vanguard Emerging Markets (VWO)||-5.49%||2.74%|
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