Five Worst Performing Country ETFs: A Golden Investment Opportunity? 11 comments
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Sometimes the best places to invest are in the scariest assets that have experienced the largest declines. Historically bear market declines are followed by bull markets. The greater the market crash, the greater the market recovery that follows it usually is. This is what David Dreman called investor overaction, when the economy is growing investors bid up equity prices too high, and when the economy is sour and the future is uncertain the market overreacts on the down side. This phenomena occurs in all asset classes, however stocks are the most affected since they are more volatile than must other assets classes. This phenomena is not unique to the United States, numerous studies have confirmed that foreign Investors overreact as much as American investors. For example the Russian stock maket declined about 83% from its peak in May 2008 until February 2009. This made Russia one of the worst performing equity markets during that time period. However since February the Russian Stock market has gone up 173% making it one of the best performing equity markets.
I only included countries that had an ETF that I could obtain sufficient information about. Iceland to my knowledge would make the list since it had a huge stock market decline and has probably been the country most affected by the global financial crisis. Iceland had a massive one day drop of 76% in October 2008 alone!, however there is no Iceland ETF and I therefore did not include Iceland in my table below. Ireland has an ETF symbol IQE, however I could not locate sufficient data on the ETF and therefore had to omit it from the chart below. Therefore I only included the countries that had ETFs I could obtain information on. I did not include any regional ETFs (ie Latin America) I focused exclusively on country ETFs.
| Country | ETF Symbol | Peak To Trough % Decrease | % Increase From Trough | % Off From Peak |
| Russia | RSX | 82% | 185% | 51% |
| India | INP | 78% | 144% | 54% |
| China | GXC | 68% | 109% | 34% |
| Italy | EWI | 72% | 97% | 54% |
| Brazil | EWZ | 70% | 152% | 24% |
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My pick for a top is last week.
On Nov 30 05:20 AM SABTrader wrote:
> Sounds good in theory but picking tops and bottoms is not easy.<br/>My
> pick for a top is last week.
The only country that has not rallied far enough to get out the "despised assets" zone is Japan.
5-Year Annualized 20.80 33.06
If it so obvious, why are the investor returns so much lower than the annualized returns?
Another point;the fact that three of these etfs are still more than 50% from their prior peak could indicate that it is a value play. However most of these ETFs were a better value play a few months ago, that is when I bought GUR.
On Nov 30 10:13 AM Alan Young wrote:
> Darn right you're not picking a bottom!! This trade is 8-10 months
> old, and has been obvious to everyone else in the world for at least
> the last 6. Did you just wake up from a long nap? They are now momentum
> picks, not value picks (although Russia still has some value elements).
>
>
> The only country that has not rallied far enough to get out the "despised
> assets" zone is Japan.
And the iPath INP India vehicle is not an ETF; it's an ETN. Please check your sourcing materials thoroughly before writing.
Your second error is the more noteworthy, and one that helps lead folks down the path re: not understanding the differences between ETFs and ETNs. I understand that your treatment is more broad than this, but accuracy is nevertheless a virtue...
Best,
Geoff
Thank you for letting me know IQE was de-listed that is probably why I could not find information on it. I did not discuss CEFs in my article. I know that there is a CEF IRL that covers Ireland, but I only wanted to analyze ETFs in particular.
Thank you for bringing to my attention that INP is ETN. On various websites it is listed as an ETF. Thank you for bringing this error to my attention.
On Nov 30 01:35 PM Geoffrey Lordi wrote:
> The NETS IQE Irish ETF you referenced has been delisted for many
> months. There is currently at least one CEF that tracks Ireland.
>
>
> And the iPath INP India vehicle is not an ETF; it's an ETN. Please
> check your sourcing materials thoroughly before writing.
>
> Your second error is the more noteworthy, and one that helps lead
> folks down the path re: not understanding the differences between
> ETFs and ETNs. I understand that your treatment is more broad than
> this, but accuracy is nevertheless a virtue...
>
> Best,
> Geoff
The reason that the investors' returns are so much lower than the annualized returns is that most retail investors show up late to the party, as Alan Young pointed out. They pile into the "hot" sectors/funds WELL after the bottom, as in this case, and sell again on the way down, or at the bottom to pile into the NEXT "hot" sector/fund.
On Nov 30 10:40 AM Jacob Wolinsky wrote:
> EWZ Investor Returns Annualized returns
> 5-Year Annualized 20.80 33.06
>
> If it so obvious, why are the investor returns so much lower than
> the annualized returns?
>
> Another point;the fact that three of these etfs are still more than
> 50% from their prior peak could indicate that it is a value play.
> However most of these ETFs were a better value play a few months
> ago, that is when I bought GUR.
>
> On Nov 30 10:13 AM Alan Young wrote:
It should be noted that four out of the five countries listed are BRIC countries (Brazil, Russia, India, China). It is ironic that these countries which are touted as high growth countries and as very attractive investments were the most dumped during the global sell-off. As a value investor I see this as a classic case of everyone trying to get in on the latest craze. However, once these speculators lose a significant chunk of their investment they sell to protect against further loses. However, since the sell-off many investors have come back to their senses and are getting exposure to these countries again. Many investors are now poring into these markets because they are becoming "hot" again.
But If what I wrote was so obvious why did the average investor sell out instead of buying more on dips? Obviously it is not that obvious.
On Nov 30 06:33 PM Old Trader wrote:
> Mr. Wolinsky,
>
> The reason that the investors' returns are so much lower than the
> annualized returns is that most retail investors show up late to
> the party, as Alan Young pointed out. They pile into the "hot" sectors/funds
> WELL after the bottom, as in this case, and sell again on the way
> down, or at the bottom to pile into the NEXT "hot" sector/fund.<br/>
"But If what I wrote was so obvious why did the average investor sell out instead of buying more on dips? Obviously it is not that obvious."
Not sure what point you're trying to make here. You (or I) don't really know what "the average investor" really did. If anything the chart action seems to indicate investors were "buying on dips" in spades.
Your article's sole argument seems to be that these ETFs were high before, and by definition they are guaranteed to go exactly to their prior prices asap - you are not making making any case on fundamentals at all (and any fundamental case for a -country- would be vague at best). You could reuse that argument to imply that every single asset class, from real estate to stocks should return to their prior peaks asap.
I stated clearly that I never recommended buying these etfs. However, sometimes a large decline in a stock/asset warrants further investigation. This is due to investor over reaction. In fact this is one of the five methods that Tweedy Browne uses for evaluating stocks. Stocks that experience large declines (even if earnings also decline) usually will revert to previous prices this is known as reversion to the mean. This has been well documented by both David Dreman and Tweedy Browne LLC. If you want more data on this topic look at What Has Worked In Investing which is a magnificent pamphlet produced by Tweedy Browne.
I never said that these asset classes will return to their peaks ASAP, you made that up.
On Nov 30 10:08 PM GoMyLittleSheep wrote:
> Those ETFs went up as fast as they went down. I see that more of
> an indication of a relatively more thinly traded market causing high
> price sensibility, as well as a higher mix of momentum investors
> in the securities.
>
> "But If what I wrote was so obvious why did the average investor
> sell out instead of buying more on dips? Obviously it is not that
> obvious."
>
> Not sure what point you're trying to make here. You (or I) don't
> really know what "the average investor" really did. If anything the
> chart action seems to indicate investors were "buying on dips" in
> spades.
>
> Your article's sole argument seems to be that these ETFs were high
> before, and by definition they are guaranteed to go exactly to their
> prior prices asap - you are not making making any case on fundamentals
> at all (and any fundamental case for a -country- would be vague at
> best). You could reuse that argument to imply that every single asset
> class, from real estate to stocks should return to their prior peaks
> asap.
Your risk preference is a little heady for your audience.
And, they dislike cold tea as well. I like your ideas, but the work is dated. I do suspect however that broader EM etfs are still buys. I think VWO is a good example for a balanced portfolio for 2010. Country specific funds are just a tad risky for this board.