Asia-Pacific Financial ETFs Thriving In Spite Of U.S. Pullback

Includes: ASEA, DVYA
by: Gary Gordon

There are moments when I get tired of hammering on a theme. For example, on April 1, I penned an article titled "Selecting Safer Growth And Income ETFs For The Second-Quarter Pullback." The commentary made the simple case for shifting to sectors that do not exhibit a great deal of economic cyclicality. After all, worldwide central bank easing might be able to create a "wealth effect," but it could not keep global GDP from slowing to a crawl.

Not surprisingly, many of my follow-up features focused on the importance of taking a more defensive stance:

  1. "Three Trends That Favor Non-Cyclical ETFs In April"
  2. "Worst Labor Force Participation Since 1979 Bolsters The Appeal Of 'Low Volatility' ETFs"
  3. "An ETF Portfolio For Lowering U.S. Stock Risk"

Many folks expressed gratitude. Others suggested that I "pound sand." Still others are reserving judgment. (In truth, it is the third group that may very well recognize that circumstances can change rather quickly.)

In any event, as the corrective phase proceeds -- minor pullback, significant correction, or bearish downtrend -- I find myself intrigued by assets that march to the beat of a different crash cymbal. For instance, U.S. stocks may be having their worst week in a year's time, but Asia-Pacific Financial ETFs are hitting new 52-week highs.

In actuality, some of the names are a bit deceptive. The iShares Asia Pacific Dividend ETF (NYSEARCA:DVYA) might give you the first impression that you would be heavily exposed to a variety of emergers or quasi-emergers in places like South Korea, Taiwan, and possibly mainland China. Yet DVYA has 45% in Australia alone and 55% with the high-yielding Australia-New Zealand combo. And while most Asia-oriented ETFs exclude Japan, DVYA does not, giving the fund a boost at a time when Japan has accelerated its yen-depreciating stimulus.

DVYA has another advantage in today's yield-starved world. Its 30-day SEC yield of roughly 5% comes primarily from telecom and financial stocks. Whereas financials may seem risky at first glance, one only needs to consider that some of the safest banks in the world are located in Singapore and Australia -- the two countries with the largest weightings in this exchange-traded tracker.

Global X created a similar vehicle that focuses more on emerging markets in Asia. The GlobalX FTSE ASEAN 40 (NYSEARCA:ASEA) encompasses companies in Singapore, Malaysia, Philippines, Thailand, and Indonesia. One reason ASEA is hitting fresh 52-week highs is largely tied to having similar attributes as DVYA; that is, a 40% weight in Singapore and a 40% weight to Asian financials may be viewed by many as relative safety in banking/insurance/financial company health. The 0.65% expense ratio is a tough pill to swallow, although 20% less beta risk than the S&P 500 makes up for a number of shortcomings.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.