Financial ETFs vs. International ETFs: Which Bear Is Grizzlier?

By Gary Gordon | September 02, 2008 | 4:04 PM | 1 Comment

The bearish losses in the international markets will make investors wince... if they aren't wincing already. They may even make some folks crumble in despair.

The benchmarks across the globe are daunting:

(1) Old school Europe in the iShares S&P Europe 350 Index Fund (NYSE: IEV) logs a -27.5% from its peak.
(2) The iShares Emerging Markets Fund (NYSE: EEM) serves up a -28% from its high point.
(3) The iShares MSCI Pacific excl Japan Fund (NYSE: EPP) offers a -32.5% from the Pacific heights.
(4) Market Vectors Russia (NYSE: RSX) delivers a painful -35% from the Moscow top.
(5) The FTSE China 25 Index Fund (NYSE: FXI) issues a -43% drawdown from the highest brick on the Wall.

The media blame these losses on the potential for a worldwide recession. Keep the word "potential" in mind. After all, we haven't seen anything close to negative growth across the continents. We've seen evidence of a slowdown.

Yet the numbers are frighteningly large. Even the Latin America 40 Index (NYSE: ILF), once thought to be untouchable, has dropped 24% into its own bear.

For smart investors, the answer on international investing has been clear for quite some time. Sell at a 12%-15% stop, and take the small gain or small loss. At least for the near-term, the mauling requires the management of downside risk.

In the U.S., the biggest losses have come from one segment alone: Financials. For example:

(1) The StreetTracks KBW Insurance Fund (NYSE: KIE) fell -27.5% from the top.
(2) Vanguard Financials (NYSE: VFH) soured -36%.
(3) The StreetTracks KBW Bank ETF (NYSE: KBE) sank -41% since its summer 2007 heyday.

Here's the thing: Are we closer to getting through the financial crisis or are we closer to reviving international growth? I'm not sure. Both U.S financials and international look horrendous.

From a time stamp alone, however, the U.S. credit crisis seems to have precipitated much of the world's current concerns. Moreover, international funds have outpaced domestic funds for much of the current decade. What's more, the dollar has been recovering against most world currencies. And last, but not least, economic cycles typically require more time for turnarounds than do crises... which tend to get solved sooner.

Could the Financial Bear be nearer to hibernation than its grizzly cousin, International Bear? Time, rotation and the U.S. dollar favor financials. Yet, long-term logic might favor international opportunism.

 

Disclosure Statement:  ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

 

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Good Point Regarding Slowdown vs. negative growth. The rest of the world follows the US and with commodities retreating and the dollar advancing vs. the Euro it is hard to imagine any type of prolonged global recession. IMHO. Submitted by Anonymous (not verified) on Tue, 2008/09/02 - 6:42pm » reply |