Momentum Shifts From Growth To Value: Should You? [Podcast]

by: Gary Gordon

Here are the types of investing questions you may be reading out in the blogosphere:

1. Would you rather invest in the U.S stock market, which was essentially flat in 2011, or would you rather invest in Asian markets, which are essentially 20% cheaper than they were over the prior 12 months?

2. Would you rather invest in the U.S as a country, which is muddling along with ultra-slow GDP growth, or the Asia region, where many economies are still growing by 4%, 6% or 8%?

Detractors might point to the fact that when 2011 began, Asian economies were already growing rapidly. Yet that did little to prop up Asian equities. In fact, if rapid-fire economic growth is so important, Asian stocks should be selling at a premium. Today, however, they are selling at a rather dramatic discount.

Keep in mind, though, most emerging markets were not only battling European debt concerns, they were tightening fiscal/monetary policies to battle inflation. In 2012, most emerging nations have started the process of loosening monetary and fiscal policies. The resulting economic stimulus is likely to boost Asian neighbor exports to China as well as middle class consumption on the mainland.

Aren’t emerging markets still dealing with Europe’s debt concerns? After all, on 1/14/2012, S&P downgraded the sovereign debt ratings of nine Eurozone countries, including Portugal, Italy and Spain. Won’t that cripple an emerging Asian region that is highly dependent on exports to Europe?

Not necessarily.

In my recent commentary about the potential easing of Europe’s credit crunch, I address a shocking trend in the 3-month LIBOR. Specifically, the rate has eased from a 52-week high of 0.582% on 1/5/2012 to 0.567% on 1/14/2012. Prior to this short-term trend, 3-month LIBOR had risen steadily – almost every day for 6 months – from a low of 0.255%. If the credit crunch is abating, Asia ETFs with significant financial weightings may be a beneficiary (e.g., Malaysia (NYSEARCA:EWM), Singapore (NYSEARCA:EWS), etc.).

Of course, few may want to “bet the farm” on Europe getting its act together overnight. For that reason alone, you may want tried-and-true value investments like iShares Morningstar Large Cap Value (NYSEARCA:JKF). Or you may want to give a nod to the U.S. consumer. Europe may be wallowing, yet the American consumer expressed more confidence than at any moment since May.

Unfortunately, selecting an individual retail stock is “hit-or-miss.” For instance, think people won’t pay for expensive Starbucks (NASDAQ:SBUX) coffee anymore? It’s up 33% off its lows and pushing 52-week highs in less than 3 1/2 months. Think revenue should be pouring into teen clothing sensation Abercrombie and Fitch (NYSE:ANF)? It registered -40% losses in the exact same 3 1/2 month period.

Simply put, stock picker’s may struggle mightily at “retail detail.” In contrast, passive indexers with a yen for the consumer might consider PowerShares Dynamic Retail Portfolio (NYSEARCA:PMR).

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.