Michael Johnston's  Instablog

Just as leveraged ETFs are prompting warnings from regulatory agencies and drawing criticisms from U.S. investors, these controversial funds are enjoying tremendous popularity in Europe, where ETF Securities has launched the first complete platform of 2x leveraged and 2x inverse leveraged funds tracking Europe's most popular equity indexes. The funds offer both leveraged bull and bear market exposure to the following indexes:

Many investors who had the resolve to keep their equity holdings in place as global markets plunged to new lows in the first few months of 2009 were the beneficiaries of a familiar gift from an old friend. Emerging markets, which have regularly enhanced investor returns in recent years (well, prior to 2008 at least...) have led the way in the recent bull run, recovering a significant portion of the disproportionate losses they incurred during the global recession. But as the ETF industry continues to expand, investors may begin to look beyond emerging markets to a new group of countries for both international diversification and enhanced portfolio returns.

Over the last several years, multiple ETF issuers have introduced Frontier Markets ETFs, funds tracking indexes based on the stock markets of those countries one stage below "emerging" status. These markets, which can experience explosive growth during bull markets but suffer severe losses during downturns, may become increasingly popular if risk aversion continues to dissipate and investors' appetite for risky equities returns.

Gulf States ETFs, which had been enjoying sustained rallies in recent months, paused last week as turmoil in Iran intensified and tremendous uncertainty looming over the entire region. While few ETFs on the market maintain any direct holdings in Iranian companies, the fallout over presidential elections held earlier this month threatens to destabilize the entire region, halting a rally that had seen these funds focused on other Gulf states cross into the black for the year. 

Over the weekend, the Wall Street Journal's Jerry Seib penned an interesting article examining the possible outcomes of the current situation in Iran, none of which are particularly appealing to foreign leaders watching the events unfold. I'm inclined to view Mr. Seib'spossibilities as a bit naive and optimistic, particularly after a weekend of violent clashes between supporters and news Monday morning that some voting irregularities have been uncovered, with the number of votes cast in many regions exceeding the number of voters. Whereas a few weeks ago many (myself included) were optimistic that these elections could usher in broad-based reforms and an easing of international tensions, the most likely scenarios now all involve Ahmadinejad remaining in power, perhaps bolder and more defiant than ever.

iShares added yet another ETF to its market-leading family of funds on Friday, launching the S&P Emerging Markets Infrastructure Index Fund (EMIF). EMIF will compete with PowerShares' Emerging Markets Infrastructure Portfolio (PXR), an ETF that began trading in October 2008 and has grown to a market capitalization of more than $46 million. PXR, along with many other emerging markets ETFs, has been very popular among investors in recent months, rising more than 35% year-to-date. Now that iShares has launched a fund that could compete with the existing PowerShares ETF for future investor dollars, here's a side-by-side breakdown of how these two stack up:

Country Coverage: China, Brazil, and Argentina will comprise more than 55% of EMIF's holdings, while PXR is significantly more diversified. China, Indonesia, and Russia receive the largest allocations in the PowerShares fund, accounting for just under 35% of total holdings. Although China is the largest component of PXR, EMIF has more than double the China exposure. PXR affords much more weighting to Indonesia, Russia, and South Africa.

Emerging markets have led the way for a global market rally in recent months, with many broad ETFs (such as ADRE and EEM) rising more than 40% since bottoming out in March. While nearly all emerging markets are in the black for 2009, no market has experienced a more rapid recovery than Indonesia. After tumbling by more than half in 2008, Indonesia's Jakarta Composite Index has surged in 2009. Before a recent pull back, Van Eck's Market Vectors Indonesia Index (IDX), which tracks the broad Indonesian stock market, had more than doubled since its January launch, and still remains up more than 80% since inception. So what's driving this remarkable rally in 2009? The answer lies in the past.  

Lost in the headlines of yet another eventful week on Wall Street was news of the first BRIC summit, held this week in Yekaterinburg, Russia. BRIC ETFs have been risen sharply in the first half of 2009, but investors looking for good news out of the summit to continue the rally were largely disappointed, as the meeting failed to yield any substantive action points or resolutions. Worse yet, obvious conflicts between the members seem to indicate that future collaboration may be largely for show, as the differences between member nations are abundant.

BRIC countries include Brazil, Russia, India, and China. The term was introduced by Goldman Sachs in 2001 to collectively describe the four fast-growing emerging markets that were hot investment options at the time. It was theorized that given the tremendous growth rates of these four small (at the time) economies, the BRIC countries could eclipse the combined economies of the world's richest countries by 2050. While BRIC leaders have previously held less formal meetings during UN conferences, this week's summit in Russia market the first effort of these disparate nations to formally organize themselves and convert their collective economic resources to geopolitical clout.