For example, I have been a well-documented bull on Asia over the last six months. I used a wide variety of info to make the case for China's turnaround and, so far, the markets are saying that I am right.
Yet, one of my favorite countries (Malaysia) in the region ran into political headwinds.
Rather than insist the China neighbor theme would work for every Asia-Pacific player, I exited Malaysian equities. Also, I increased my exposure to iShares MSCI Asia excl Japan (AAXJ) as well as iShares MSCI Australia (EWA). In some aggressive accounts, I initiated a position in PowerShares DB Base Metals (DBB), sensing that metals like copper and zinc would play a large role in China's economic resurgence.
Does my conviction on Asia's recovery make me an unqualified stock ETF bull? Hardly. I gave the example of how I reduced exposure to the Malay peninsula. What's more, I employ stop-limit losses, non-correlated assets and hedges to reduce portfolio risk. At the same time, there are plenty of reasons for optimists to rethink the recent exuberance. Corporate earnings are growing at a slower rate than previous quarters. Consumer sentiment is falling. Meanwhile, fourth-quarter GDP was downright abysmal. (Note: The cynic in me recognizes that bad economic data may only benefit stocks in the near term, as the Federal Reserve has the ammunition to keep purchasing bonds by the boatload.) If you want to press the bear button, you might do so on unhedged European equities. For instance, a fund like WisdomTree Small Cap Europe Dividend (DFE) is severely overbought on a technical basis via months of extremely high Relative Strength Index (RSI) readings. The euro currency itself is due for a pullback. And Europe's economic malaise has been getting worse, not better, making it harder for smaller companies to thrive. Ultra-aggressive ETF enthusiasts might consider shorting DFE. There are several other ETFs that bearish investors might want to take a look at. For instance, precious metals have been noticeably resilient over the last six months. They may not have picked up the kind of ground that capital appreciators hope for.
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