Indexor

Do Emerging Market ETFs Really Help You Diversify?

(Note: During a raging bull, as long as you've got stocks, you're making money. It hardly matters that all of your stocks overlap because you're experiencing gains. Yet in a bear, low-correlating/non-co... correlating assets buffer the adverse effect of stock depreciation. And that's the real reason we "diversify.")

Note: During a raging Bear, as long as you've got stocks, you're losing money. It hardly matters that all of your stocks have low correlation values because they can't buffer the adverse effect of stock depreciation. And that's the real reason we sell all stocks.

The iPath Dow Jones-AIG Commodity Total Return ETF (DJP) is not a stock fund. Neither is the SPDR Lehman International Treasury Bond ETF (BWX). That is why diversifying among different ASSET CLASSES as opposed to diversifying among different STOCKS can provide profits. Your continual pitch for the WisdomTree Emerging Market High Yield ETF (DEM), with inaccurate yield assumptions, is disturbing as it is still a STOCK fund and has lost money in this Bear market.

The only place for STOCK allocations (outside of the safety of cash) if you must be fully invested at all times is inverse stock funds, which take the opposite side of the trade for the specific sub-asset class you wish to own. As an example, rather than the WisdomTree Emerging Market High Yield ETF (DEM) which has lost money, compare that ETF to the ProShares Short MSCI Emerging Markets ETF (EUM), which does not apply leverage. Which would you have rather owned?

Disclosure: Writer has previously owned DJP and currently owns BWX.