Riskier Stock ETFs Are Back In Vogue

It’s been a spectacular week for the bulls… no doubt about it. Both the S&P 500 and the Russell 2000 gained ground in all 5 trading sessions. In fact, the iShares Russell 2000 (NYSE: IWM) hit fresh 52-week highs, closing in on territory not seen since the Lehman bankruptcy (9/2008).

Some attribute the new-found desire for stock assets to a better-than-anticipated jobs numbers from February. Others believe the retail data/consumer spending data came in strong. Still others see promise in the idea that the European Union is willing to help Greece, but on the EU’s terms.

However, one could just as easily agree with Pimco’s El-Arian that Greece is just the beginning of Europe’s problems in 2010, as Spain and Italy are next in line for debt discussions. Similarly, the Fed’s beige book addressed below-trend GDP growth in a week when housing sales continued to disappoint.

So why, then, have the U.S markets taken the positives to heart? And more importantly, why have the best ETF performers of the week come from either the most economically troubled countries (e.g., Spain, Italy, etc.) or the most resource-rich nations (e.g., Australia, South Africa, etc.)?

Of course, the reason for the risk in the above-mentioned country ETFs is entirely different. Australia and South Africa, while economically sound, are enormously dependent on the global growth story; that is, China and India and the rest of the world must be in a position to keep buying their “stuff.”

On the flip side, Spain and Italy are mired in recession/stagnation. Their sovereign debt is being described as unworthy. And the depreciating euro-dollar has taken the wind out of the sail for investing in the country’s companies, as they earn profits in euros.

One could infer from the return to risk stock assets two things: (1) There’s still “love” for the global growth story, helping the resource-rich country ETFs, and (2) Europe may have been battered enough such that investors are scooping up perceived bargains.

(Note: I suggested the probability of some bargain-hunting 2 weeks ago. Review my 2/24/2010, “Any Hope For Spain, Italy and Other European ETFs?“)

Keep in mind, risk is a word that can be used in many different ways. Here, I am essentially employing risk to describe price volatility. Economic risk, interest rate risk, political risk, business risk, currency risk, market risk, systemic risk – these are types of risks evaluated in the ETF Risk Alert service. 

Select International ETFs Over 5 Days and 3 Months
					% Gain (1 week)		% Gain 3 Months
iShares MSCI South Africa (EZA)					8.3%		2.2%
iShares MSCI Spain (EWP)					6.7%		-14.7%
iShares MSCI Australia (EWA)					6.0%		1.0%
iShares MSCI Netherlands (EWN)					5.9%		-2.4%
iShares MSCI Italy (EWI)					5.5%		-10.5%
U.S. S&P 500 SPDR Trust (SPY)					2.7%		2.8%

 

Now take a look at the 3-month numbers. The broader S&P 500 (SPY) Trust is leading both types of riskier stock ETFs. However, if the trend towards risk asset purchase continues, the rocky 3-month percentages hint at more upside potential from the beaten-down European region and the global growth beneficiaries like Australia (NYSE: EWA) and South Africa (NYSE: EZA).

 

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