Top 5 ETF Performers Relate to China and Commodities

We've basically reached the midway point of 2009. Granted, we can talk about the resurrection of industrial metals, the resilience of emerging regions and/or the miraculous turnaround for financial stocks off of the March lows.

When all is done and said, however, what are the real drivers of asset price appreciation? For the last 6 months, it's all about China.

Metals? Guess what country is buying foreign miners or making deals with them. Emerging market growth? Guess what country drives the surge in basic material-oriented countries like Chile, Brazil, Peru and South Africa. Financial stocks stabilizing? Guess what country buys our Treasury debt, keeping the U.S. system afloat?

10 weeks ago, I suggested that investors might want to consider buying what China buys. The returns for iShares S&P Global Materials Fund (MXI), Global Alternative Energy ETF (GEX) and the iPath Dow Jones-AIG Nickel Commodity ETN (JJN) have certainly been more vibrant than domestic or foreign market benchmarks.

Yet, what were the top 5 ETFs (through 6/28/09)? Here's what my database produced:

Top 5 ETFs For 2009 (through 6/28/09)
					% Gain	% Below 52-Week High
United States Gasoline (UGA)					66%		-52%
Claymore/Alpha Shares Real Estate (TAO)					61%		-6%
Claymore/Alpha Shares China Small Cap (HAO)					59%		-10%
Market Vectors Coal (KOL)					59%		-60%
Market Vectors Russia (RSX)					58%		-62%

The easiest thing that we may take from the list is the "re-boom" or reflation of commodity demand. Coal, gasoline and crude oil are all tremendous calendar year gainers.

Note that I add "crude oil" because Market Vectors Russia (RSX) is so entirely dependent on the direction of crude prices and the demand for the commodity, it may even be a preferred tracking mechanism than United States Oil (USO).

We can also note that, in spite of the calendar year run-up, commodity-intensive ETFs are still "eons" away from claiming a spot atop their prior pinnacles of 2008. For those that think hyperinflation is the next wave... might we be forgetting that the previous commodity boom with crude near $150 was a period of hyperinflation.

Naturally, none of the trends that we are currently seeing in commodity ETF appreciation would be possible without the country that's been on a binge to acquire resources. Yep... China.

Lest there should be any doubt about just how serious China is about acquiring a bevy of resources, consider the stats. Forbes reported that China has increased tons of gold by 75% since 2003. It purchased a record 400,000 tons of copper in April. And when it comes to iron ore... China upped its imports 33% year-over-year.

What do you do with iron, steel and copper. You build stuff. Is it any wonder that Claymore/Alpha Shares Real Estate (TAO) is near the top of the leader-board as well as close to a new 52-week high?

To be fair, actual demand for these commodities may not be as great as the Chinese purchasing suggests. Rather, some reports show that China is simply stockpiling (hoarding) in an effort to help local producers and/or to keep migrant workers busy (as opposed to angrily protesting).

Nevertheless, whatever side of a bear/bull fence you choose to sit upon, your eyes need to look to the Far East. If the China recovery is for real, investors stand a better chance. If China muddles through, the rest of us may be muddling right along with the premier "emerging" nation.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[Spartacus t...:]

I also like China's General Steel Holsings (GSI) here for reasons you've outlined in your article.

Jun 30 08:22 AM

[Mad Hedge F...:]

And they'll do better. “If 1.4 billion people suddenly decide to spend an extra dollar a day, it will have a massive impact on what’s going on in the world,” said Andy Brough, a fund managers at Schroeder’s, about Chinese efforts to stimulate domestic consumption.

Jun 30 01:38 PM