ETF Update: Middle Eastern ETFs?, August Reversal

Middle Eastern ETFs?

The Middle East is shrouded in mystery and investors who want to dabble in those economies should do so with a bit of caution, say advisors, as ETFs are allowing access for all.

ETF providers are already scoping out the Gulf as the next investment frontier. But advisors are warning that the waters are yet to be tested and just because there is access doesn’t mean it’s a good idea - yet, reports Richard Harris for Reuters.

Many ETFs have come to the market after the latest commodities implosion, with surging oil prices the number-one attraction to the region. This is still a volatile region, and the general consensus warns to stay away from chasing fads. One investment manager points out that there’s a lot more to investing in the Middle East aside from “There’s oil there; they’ll make money.”

It’s true that there are risks and other issues to consider, especially in an area such as the Middle East where there has been a lot of political volatility.

Investors need to know the risks and what they can tolerate. Everyone is different, and the Middle East may not be right for all investors and their portfolios. Wait until these funds establish long-term trend lines, and once they cross them consider if they’re for you. Protect yourself by having your stop loss in place.

So far, access is granted through:

• WisdomTree Middle East Dividend (GULF), down 2.5% since July 22 inception
• Market Vectors Gulf States (MES), down 9.8% since Aug. 22 inception

August Reversal

August was an unpredictable month for ETFs, as the funds that were from last year’s weakest sectors went through a reversal.

The U.S. dollar regained its strength against other major currencies, and precious metals melted down along with other commodities, reports Trang Ho for Investor’s Business Daily.

The homebuilding sector showed more strength, despite the housing numbers remaining dismal. It was announced on Aug. 25 that existing home sales rose 3.1% in July, while the national median sales price dropped 7.1% from the year before.

SPDR S&P Homebuilders (XHB) was up 12.3%, taking the lead among all of the sectors. iShares Dow Jones US Home Construction (ITB) was up 7% for the month. Year-to-date, they’re up 1.1% and down 8.7%, respectively. XHB has a more retail focus, while ITB holds more homebuilding companies.

Gary Gordon at ETF Expert says we are experiencing a classic case of sector rotation, and that valuations within these sectors will draw investors back at some point.

Total assets in the industry for August rose by $300 million to hit a total of $597 billion, according to early numbers from Barclays. Five new products were launched, taking the total number of ETFs to 815. Another 36 were filed with the Securities and Exchange Commission, bring the total in registration to 559.