Of all the nations in the world, no country-focused ETF has been spared in the market shake-up.
SPDR S&P 500 ETF
, an exchange-traded fund that serves as a proxy for large-cap U.S. equities, is down 37.4% so far this year. The
iShares MSCI United Kingdom Index Fund
has fallen a staggering 43.8%. The
iShares MSCI Japan Index Fund
iShares FTSE/Xinhua China 25 Index Fund
have plunged 35.4% and 52.3%, respectively. Russia has been among the hardest hit. Investors in the
Market Vectors Russia ETF
have choked on a loss of 71.2%.
So with all this turmoil, how does an ETF investor gain international exposure? There is no easy answer, only arguments for which country or region looks most favorable for a rebound. "There have not been many places in the world where an investor could have escaped the declining equity markets so far in 2008," says Keith Walter, co-portfolio manager of the
Artio Global Equity Fund
. "We are struck by the consistency of the negative returns across all major markets without regard to the differences in underlying fundamentals."
In some cases, investors might find ETFs too broadly dispersed. For instance, Walter particularly likes certain pockets of Europe that may be difficult to capture in an ETF. "We are finding companies located in Central and Eastern Europe best illustrate a relative immunity to the current de-leveraging crisis," he says.
"In Central and Eastern Europe, our favorite companies are located in the strongest countries of the region, like Poland and the Czech Republic," he says. "One such name is
, which is the third-largest bank in the Czech Republic and is majority owned by a major French bank."
Not for the Faint of Heart
Recent global market declines have drawn one financial adviser to Asia. "We think some of the Asian economies have gotten beaten up too much relative to some of the other international markets," says Michael Joyce, founder and president of JoycePayne Partners. "If an investor has a risk tolerance that can stomach the volatility, than we think the Asian markets make a lot of sense right now."
Joyce says there could be a longer path to recovery in Europe. "We're less bullish on Europe," he says. "When I was on a business trip to London in May, a lot of the hedge fund managers over there were waiting for the other shoe to drop. Right now the markets in Europe are being affected by their credit crisis a lot more than people initially thought they would be."
Some of the world's emerging markets that had seen unprecedented growth in recent years have been the quickest to fall in 2008. These steep declines have one money manager seeing value. "Valuations have changed for emerging markets over the past several weeks and our forecasted real returns are now more compelling across the board than they were earlier in the year," says David Hogan, client portfolio manager of the
Laudus Mondrian Emerging Markets Fund
Despite the more favorable valuations, Hogan believes some foreign markets are better positioned than others. "The portfolio has overweight exposure to select markets such as Taiwan and Turkey where the outlook is more positive from both top-down and bottom-up perspectives," he says. "Relative to the MSCI World Index, we are underweight the U.S. in favor of the Pacific region including Australia, Japan and Singapore. We are also overweight certain European markets."
As of June 30, top holdings of LEMIX included
Taiwan Semiconductor Manufacturing
The Rising Sun
Chad Deakins, portfolio manager of the
RidgeWorth International Equity Fund
, says the U.S. has an outlook that is relatively favorable. "The U.S. is much further along in the correction phase compared to other markets," he says. "Europe looks particularly weak compared to the U.S. right now, although not as weak as the emerging markets."
Deakins also likes the Japanese markets. "Japan looks stable right now," he said. "The stocks there are very, very cheap."
East Japan Railway
was a top-five holding of Deakins as of Aug. 31. It is also a component of EWJ. "It's trading at an attractive discount right now," Deakins said. "It has stable cash flows and will continue to make profits in this environment."
At the time of publication, Fisher was short RSX.