Is it difficult to grasp the appeal of precious metals? Not really… no. World powers are fighting to weaken their respective currencies to enhance or maintain their ability to export goods. Gold, in particular, has been acting as a proxy for “paper” uncertainty.
Is it hard to understand why single-country emerging market funds dominated the performance leader-board in 2010? Not particularly… no. Thailand (THD), Indonesia (IDX), Peru (EPU) and Chile (ECH) offered exposure to dynamic growth plays in up-n-coming regions, while letting the investor side-step broader-based indexes with excessive materials exposure.
Is it challenging to identify why Software (IGV) and Semis (XSD) dominated the tech space? Not in actuality… no. Corporations seriously needed upgrades with Windows 7; having balked at the notoriously poor Windows Vista a few years earlier, companies could commit to productivity enhancement without adding significantly to human resources overhead.
Nevertheless, some ETFs have defied simple explanations for their success. And while I may venture a guess at what the attraction may have been, I still believe these 3 ETFs may have beaten the odds.
1. Index IQ Small Cap Canada (CNDA). Time and again, I’ve purchased iShares MSCI Canada (EWC) as well as CurrencyShares (FXC) for my clients. Rarely have either one of these investments disappointed. Yet I must admit, I didn’t see the attractiveness of going “small” when it came to our northern border.
Traditionally, Canada’s appeal has been its vast oil and gas reserves. Moreover, you get plenty of exposure to energy and materials as an investor in EWC, 25% and 22% respectively. So would Index IQ’s Small Cap Canada (CNDA) add value through different sectors of the Canadian economy? Not exactly. CNDA simply ratchets up the metals/mining/materials component to a whopping 50%, while maintaining a healthy allocation of 20% to energy. CNDA, then, is a way to get more speculative, less diverse and more focused on what Canada does best.
2. iShares Global Consumer Discretionary (RXI). A lot has been written (yes, by me as well) about the rise of the middle class in emerging markets. Yet this isn’t an emerging market consumer fund… this primarily represents consumers in the developed world from the U.S. to Europe to Japan. So when all investors hear about is the bunker mentality of the Japanese culture, the deleveraging of the American consumer and the credit crisis in Europe… is it a wee bit impressive that RXI is in the top quartile of all ETFs in relative strength? How about a year-over-year percentage profit of 24.8% compared to the S&P 500 SPDR Trust’s (SPY) 14.2%.
3. First Trust DJ Microcap (FDM). If at the start of 2010, you had accepted the premise that the U.S. dollar would further deteriorate… or if you had concluded that companies earning the overwhelming majority of their profits domestically would be challenged… you might have stayed away from microcaps. Not only are microcap stocks traditionally more volatile, but microcap corporations are typically more dependent on access to credit. Nevertheless, FDM has logged consistent gains over 1 month (7.2%), 3 months (26.2%), 6 months (21.1%) and 12 months (28.9%). Note: You may wish to revisit my MicroCap ETF feature, “3 Funds For Capitalizing on American Confidence.”
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.