NEW YORK (ETF Expert) -- If one focused his/her attention solely on year-to-date performance, he/she might eschew foreign stock ETFs altogether.
S&P 500 SPDR Trust
iShares S&P Mid-Cap 400
garnering 18% and 22%, respectively, who needs to dabble in emerging markets? After all,
Vanguard Emerging Markets
registered a dismal nine-month showing of -8%.
Think about the discrepancy for a moment. Stock assets around the globe have a tendency to move in the same direction. Yet, broad-based emerging market ETFs have been a drag on investment portfolios. And there's more. During the October 2002 to October 2007 bull market period, emerging market equities provided three times the upside of their U.S. counterparts. In complete contrast, over the last two years, U.S. stocks have provided three times the upside.
On the other hand, if one looks beyond recent disappointments, as well as record ETF outflows in August, the reemergence of emerging markets may soon become the hot story. Not only did broad gauges like VWO appear to bottom out in late August, but resources-related ETFs skyrocketed on a three-month basis.
Sentiment regarding emerging markets as well as resources-based assets has been improving for several reasons. For one thing, both China and Europe may be turning a corner. Economic data from both regions have improved and economic downturns are either stabilizing and/or demonstrating legitimate signs of expansion. This gives many of the exporters of basic materials and natural resources, companies as well as countries, a reason to be optimistic. Secondly, the
is likely to be more deliberate and perhaps more slow about tapering its bond purchases.
This may give emergers a bit of wiggle room with respect to a global environment that is more stimulus-friendly. Finally, fund flows in September did not merely go into broad market U.S. assets; developed Europe-Asia, undeveloped emergers as well as resource-heavy investments began to see significant ETF inflows as well.
Not surprisingly, then, even the
U.S. SPDR Select Sector Basic Materials Fund
demonstrated enormous third-quarter resilience. It was the best-performing sector ETF in the SPDR Select Sector series from July 1 to Sept. 30, with a pickup of 9.5%. Some have suggested the results demonstrate a return to fundamental value as opposed to momentum alone.
From a relative strength standpoint, I have more confidence in FCG to carry on its momentum. From a valuation standpoint, KOL may prove to be an exceptional bargain. Coal has been so unloved for so long, the July lows may have ushered in a new season for producers of the globally used resource.
Courtesy of StockCharts.com
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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