by Richard Rittorno
Just because you choose a position or invest in ETFs does not mean you can tuck them away in the back of your portfolio and forget about them. Successful traders and investors monitor the assets within the ETFs just as they would a stock. Why? Because in most cases they are chock full of stocks.
Here's why those owning the iShares MSCI Brazil Index Fund (EWZ) need to pay attention. With all the doom and gloom headlines about Greece and the eurozone last week, not to mention the Facebook (FB) IPO – did anyone notice that huge Brazilian state-run oil company Petrobras (PBR) delayed Q1 earnings from May 11 till today?
Petrobras said an "unidentified scheduling conflict caused the change". Some might not put much stock into the schedule change, but seasoned traders typically raise an eyebrow. Companies do not typically miss scheduled releases. Some might even dismiss the statement on PBR's poor performance that seems to tail spin like an F-22 with the throttle stuck, let alone the impact on the Brazilian and Latin America ETFs.
So let's put it in context with a comparison. Since the U.S. Gulf of Mexico oil spill in April 2010 and the U.S. Congress looking to put the blame squarely onto BP's shoulders, BP is down 32% pre-spill. For the same period, PBR is down 55% and sliding.
Adding to the pile-on, PBR hit a new 52 week low yesterday at $19.31, well below this psychologically damaging level for the first time since 2008. PBR issues are in turn, a large problem for the iShares MSCI Brazil Index Fund EWZ, with its price moving down given that PBR is roughly 10% of the fund.
At the end of April, EWZ was the 3rd largest emerging market ETF and the largest country specific ETF excluding ETFs that track the S&P 500. At the end of April 2011 the ETF had $13.2 billion in assets, compared to the end of April this year with $8 billion in assets. Fast forward to mid-May and assets are now below $8 billion. With no release at the time this report was written, 25 minutes after the close on May 15, one has to wonder what is going on. Companies reporting great news typically can't wait to release the news.
Keep in mind that traders need to beware of all the components within their ETFs. For example, another problem child for EWZ is being caused by the slowdown in China affecting the largest iron ore producer and a heavily weighted position within the ETF-- Vale (VALE).
Contrast this with the Global X FTSE Colombia 20 ETF (GXG), one of the best Latin America ETFs year-to-date on the strength of Ecopetrol. Ecopetrol does for GXG what PBR does to hurt EWZ.
Other ETFs to be on the lookout for with large PBR assets include:
- The iShares MSCI Emerging Markets Latin America Index Fund (EEML).
- The iShares S&P Latin America 40 Index Fund (ILF).
- The SPDR S&P Emerging Latin America ETF (GML).
- The Guggenheim BRIC ETF (EEB).
Bottom line: Traders must know what they own. PBR rescheduling its earnings with no real explanation falls under accounting irregularities in my book. With many Latin American countries trying to secure more of the oil dollars for themselves, coupled with no earnings release – there are a lot more places to make money. I can't say it loudly enough: know what you own. Just because you own an ETF does not mean you can skip the homework; if anything ETFs require more homework…
Disclosure: No positions