ETF Safety in the Eye of the Beholder

NEW YORK (TheStreet) -- If you tune out the noise -- Spanish bond yields, Greek elections, U.S. job weakness, China "hard landing" -- simplicity can guide intelligent investment decisions. Here are three potential ideas for ETF enthusiasts:

1. Safety in emerging-market sovereign debt. For example, emerging-market sovereign bonds are clearly better than comparable U.S. Treasuries. We can debate European contagion risk until we are blue in the face. Yet the iShares Barclays 7-10 Year Treasury Bond Fund (IEF) is distributing 1.85% annually whereas Powershares Emerging Market Sovereign (PCY) is delivering 5.25%.

The reality that the Federal Reserve and the central banks of the world endeavor to create inflation (a.k.a "reflation") only makes things less attractive for the safe- haven darling of U.S. government debt. Traders may try to eke out a bit more capital appreciation from IEF. That said, PCY provides 3.4% more yield and the collective debt-to-GDP ratio for the emergers in PCY versus the same ratio for the U.S. or for Europe will soon redefine the concept of bond safety. (Note: PCY is also dollar-hedged, reducing the currency risk associated with today's "strong dollar.")

2. Below 10 P/Es in foreign markets. It's true that I have virtually no equity exposure to foreign stock ETFs. Without a "black swan" opportunity, I am not going to buy or hold onto assets that fall below and stay below 200-day moving averages. (Note: Review the commentary at this link to understand the way in which I protect ETF portfolios with stop-losses, hedges and non-correlated assets.)

That said, emerging markets (particularly China) represent the engine of global growth. Were it not for a dependency on exports to Europe, would emerging stocks via Vanguard Emerging Markets (VWO) really trade at a price-to-earnings discount of 26% when compared with Vanguard Total U.S. Stock Market (VWO)? How about VWO trading at a 24% price-to-book discount when compared with VTI?

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