Financial vs. International ETFs: Which Bear is Grizzlier?
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:
- Old school Europe in the iShares S&P Europe 350 Index Fund (IEV) logs a -27.5% from its peak.
- The iShares Emerging Markets Fund (EEM) serves up a -28% from its high point.
- The iShares MSCI Pacific excl Japan Fund (EPP) offers a -32.5% from the Pacific heights.
- Market Vectors Russia (RSX) delivers a painful -35% from the Moscow top.
- The FTSE China 25 Index Fund (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 (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:
- The StreetTracks KBW Insurance Fund (KIE) fell -27.5% from the top.
- Vanguard Financials (VFH) soured -36%.
- The StreetTracks KBW Bank ETF (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 and international financials 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, the International Bear? Time, rotation and the U.S. dollar favor financials. Yet, long-term logic might favor international opportunism.
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This article has 2 comments:
- Owen
- 136 Comments
Sep 03 03:56 PMPut options on the DJIA with strikes of 6000 and 7000 are selling for pennies right now. How many have you bought? When your fantasies come true, you'll be a very rich shark! Or are you one of them Hollywood sharks that are meant to look scary but don't really do anything?
- Tinman
- 45 Comments
My Website
Sep 08 10:26 AMMore by Gary Gordon