Three Foreign ETFs That Could Rocket

NEW YORK ( ETF Expert) -- There are times when the dollar tells investors all they need to know ... at least in the short term.

For example, the PowerShares DB US$ Dollar Bullish Fund ( UUP) gained ground for nine consecutive days in an expression of serious doubt about Europe's finances and leadership. Indeed, the almighty buck still reigns supreme during gargatuan uncertainty.

In the first chart below, UUP's black bars in May graphically depict the recent aversion to risk. And yet, the greenback's appeal is not entirely new. The price of this ETF has effectively stayed above a long-term trendline for six months.

So what might this mean for a forward-thinking ETF investor? Essentially, countries with lower deficits as a percentage of their respective economic output should become attractive assets in the second half of 2012.

Perhaps ironically, one of the worst offenders in this arena is the U.S., with a 2012 estimate of -9.3%.

That said, countries like the U.S. and Japan have been able to run monstrous deficits without immediate consequences during wars and/or recessions.

Smaller countries in Europe (e.g., Portugal, Ireland and Greece) haven't had that luxury. It follows that lower-deficit countries (e.g., Germany, Finland and Sweden) will become more attractive investments as soon as the world conjures up a way to bail out Europe and its financial institutions.

Toward the end of 2011, the European Central Bank (ECB) was extremely successful in lessening concerns about the eurozone crisis. It served up refinancing loans with 1% over three years, boosting cash flow and increasing credit availability.

However, as I pointed out in previous posts, interbank lending in Europe flatlined in mid-March after 10 previous weeks of declining 3-month LIBOR rates (Jan. 1 - March 15). In effect, you can see the positive impact of the ECB intervention on a low-deficit country fund such as iShares MSCI Germany ( EWG). It rallied 20% at roughly twice the rate of the U.S. markets.

So here is what the forward-thinking investor may wish to consider. The antiausterity shift abroad all but assures greater monetary easing by the second half of 2012. The European Central Bank will have little choice but to "print money/expand its balance sheet/lend/bail out." And once it happens, the lower-deficit country ETFs should enjoy a dramatic pop.

The three that deserve the most consideration? iShares MSCI Germany ( EWG), iShares MSCI Sweden ( EWD) and iShares MSCI Finland ( EFNL).

I wouldn't invest in these today, but I am keeping them on my watch list. If the ECB acts (and it will), and if the markets then respond favorably with respective prices climbing above long-term trend lines (which they should), the gains in these funds could be superb.

Granted, a much larger theoretical question is: how long would the infusions satisfy market participants? That's not something that anyone is able to gauge.

Therefore, in my targeted asset allocation approach, I prefer assets with wide spreads over comparable Treasury bonds. They include ETFs that represent dividend stocks, high-yield corporates, investment-grade corporates, intermediate munis, preferred shares and pipeline master limited partnerships.

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Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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