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When Exchange-Traded Investments Recover

NEW YORK (ETF Expert) -- Should you buy when there is blood in the streets? While the prospect of buying low may sound great, a beaten-up asset can always get battered some more. There's no certainty when it comes to recognizing precisely when the bludgeoning will stop or when the knife will hit the floor.

There are times, however, when enough evidence comes to the forefront to make a rational re-entry. For example, few asset classes received as much "hate mail" as emerging market debt in the May-June tapering swoon of 2013. Whereas U.S. intermediate bonds may have witnessed a 7%-8% drop from the high to the low, exchange-traded funds such as PowerShares Emerging Market Sovereign Debt (PCY) experienced an 18% bashing.

Since late June, many investors have been wading back into the volatile waters. While the recovery has been inconsistent at best, the current price of PCY is within spitting distance of a long-term 200-day trendline. The 30-day SEC yield of 5% appears to be enticing income hunters. What's more, in the first few weeks of 2014, emerging market sovereign nations have collectively sold nearly $19 billion in bonds. According to Dealogic, that represents three times the amount sold at the beginning of last year.

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Commodities are another asset class that have been struggling mightily. Unlike the rate spike that pounded emerging market bonds, the nearly three-year downtrend on iPath DJ Total Commodity (DJP) can be linked to global deflationary scares. Yet, both asset types experienced dramatic price declines as investors stampeded for the exit doors; in truth, if you are holding onto the wrong "stuff" at the wrong time, you're likely to get bruised, bashed and bloodied.

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