Mapping The Returns Of Country ETFs

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Includes: ARGT, ECH, EIRL, EPHE, EPU, EWC, EWG, EWI, EWK, EWM, EWN, EWO, EWP, EWQ, EWY, EWZ, GREK, GXC, GXG, IDX, JPP, PGAL, PIN, PLND, RBL, SPY, THD, VNM
by: Daryl Montgomery

Summary

Returns on country stock markets tend to bunch together by region.

The poorest returns in 2016 so far are in Europe and East Asia, the best in South America.

Investors should adjust their portfolios to take advantage of the movements of global money.

Investors need to think globally. The best returns are usually not in the United States, nor even in economically developed countries. Few investors are probably more aware of this than the Japanese. Their stock market peaked at the end of 1989 and has not gotten anywhere near those highs in the last 27 years. Moreover, no one expects that it will any time soon. A buy and hold investor in Japan has been left holding the bag. Only those who thought of investing their funds in other countries have done well. U.S. and European investors should take note.

Since the Credit Crisis in 2008, central banks in the developed world have lowered interest rates to zero or even to negative levels and have engaged in one round after another of quantitative easing (a form of money printing). While one of the longest bull markets in history has followed, all stimuli eventually cease to be effective. The European Central Bank (ECB) and the Bank of Japan (BOJ) are currently engaged in aggressive stimulus policies, but the U.S. Fed is slowly (very slowly) withdrawing the huge amounts of easy money it has pumped into the financial system in the last eight years.

Japan and most countries in the eurozone (the ECB is the central bank for the eurozone, which does not include the UK, Denmark, Norway, Sweden, or Switzerland) have had lackluster to poor stock market performance in 2016 so far. Ironically, the U.S. (NYSEARCA:SPY) has had a slightly positive return, up 3.2% even though it is diminishing monetary stimulus. Japan (NYSEARCA:JPP) has been down approximately 3.5%.

Only three ECB countries have seen positive returns: Greece (NYSEARCA:GREK) up 12.4%, the Netherlands (NYSEARCA:EWN) up 3.4% and France (NYSEARCA:EWQ), where stocks rose 0.8%. Austria (NYSEARCA:EWO), Belgium (NYSEARCA:EWK), Germany (NYSEARCA:EWG), Ireland (NYSEARCA:EIRL), Italy (NYSEARCA:EWI), Poland (NYSEARCA:PLND), Portugal (NYSEARCA:PGAL), and Spain (NYSEARCA:EWP) all have markets that are down from 0.5% to 12.1%. On the world map, Europe is mostly a cold spot for ETF country fund returns (dark blue, which represents countries with zero or negative returns).

The other major cold spot globally is East and South Asia. Japan, South Korea (NYSEARCA:EWY), Vietnam (NYSEARCA:VNM), India (NYSEARCA:PIN) and China (NYSEARCA:GXC) all have had down stock markets year-to-date in 2016. The drops range from 1.3% in South Korea to 8.6% in China. Malaysia (NYSEARCA:EWM) and Indonesia (NYSEARCA:IDX) were up 3.4% and 4.5%, respectively (the light blue color on the map, which is used to represent a market that's up by only 5% or less). Thailand (NYSEARCA:THD) and the Philippines (NYSEARCA:EPHE) are the big success stories in the region with markets up 12.8% and 10.2% (red on the map, which indicates a country ETF up 10% or more).

Map of Country ETF Performance Year-to-Date in 2016

World Map of ETF performance as of 052516.png

Red: 10% or more, Pink: 5-9.9%, Light Blue: 0.1-4.9%, Dark Blue: Negative

The one continent that is unquestionably red hot, is South America. Every country's stock market represented with ETFs were up 10% or more. The returns range from 10.2% in Chile (NYSEARCA:ECH) to 44.7% in Peru (NYSEARCA:EPU). The top three performing country ETFs globally were South American indexes - Peru, Brazil (NYSEARCA:EWZ) up 26.9%, and Columbia (NYSEARCA:GXG) up 15.2%. Argentina (NYSEARCA:ARGT) is in fifth place with a 13.6% rally. Russia (NYSEARCA:RBL) is in fourth place rising 14.9% and Canada (NYSEARCA:EWC) in seventh with a 12.4% return.

Norway, New Zealand, and South Africa are pink on the map because they have had rallies between 5% and 10%. Their markets are warm, but not hot. An astute observer will notice that many of the countries with good rallies produce a significant amount of commodities. The commodity markets themselves have improved noticeably in 2016.

Investors who want the best returns should follow the money as it moves around the world. Some markets like Japan can remain in the doldrums for decades (it happened in the U.S. between 1929 and 1954). This doesn't mean your portfolio needs to be rebalanced every week, but at least once a year would be a good idea (once a quarter or once a half year would also be reasonable). Markets get hot for a while and it's a good idea to have a position in them when they do (ETFs make this easy to do nowadays). South America, Russia, and Canada are hot markets now, but they may not be next year or the year after. If global money shifts to other regions, investors should shift their portfolios with it.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.