Monday, October 20, 2008

Emerging Markets (REVISED 9 p.m. 10/20/2008 to include more references)

Last year, I finished selling a position in SSGA Emerging Market mutual fund (SSEMX) down to what I characterize as a bare minimum position.  I kept a 100 share position which was already paid for by profits and capital gains distributions, "playing with the house's money".  I look at it for a possible add today, noting that it paid its capital gain distribution into my account today which I have been taking in cash for two years now.  Instead of adding to it, I decided to buy instead a 50 shares position in an ETF from Powershares called Emerging Market Technical Leaders (PIE), filled at - DWA Emerging Markets Technical Leaders Portfolio - PIE  For an ETF, it has a high expense ratio of .9% and has 99 holdings.  It is down from about 25 at the start of the year when it was introduced, hardly an auspicious beginning.  As I have said in the past, however, the emerging market asset class is extremely volatile, both up and down, and it is not surprising that many of these markets have fallen more than the U.S. this year, but they also rose much more during the bull market from 2003 to 2007 too.  

I added for bro this morning a better ETF, called Vanguard Emerging Markets at near the low for the day.   The symbol is VWO.   I failed to add in my account and it is up  a buck.  With the Vanguard ETFs, the minimum order is 100 shares so I could not buy just 50 shares of that one.  VWO  has a much lower expense ratio at .25% and a much broader spectrum of stocks, almost 900 which can be a good warm blanket but a more focused fund could do better or worse.  Another ETF that I bought and sold in 2007 for bro is ADRE, which has 50 ADRs from emerging market countries in the ETF. - BLDRS Emerging MKTS 50 ADR Index Fund - ADREIt has a slightly higher expense ratio at .3% and would be more focused on larger and more established companies than the one from Vanguard, which would include many small and medium size companies.   Lastly, another ETF with stocks from emerging markets is from Wisdomtree, and its hook is to focus on dividend paying companies.WisdomTree - WisdomTree Emerging Markets High-Yielding Equity Fund (DEM)  It has a higher expense ratio than VWO or ADRE at .63%. 

 SSGA has one with a .6% expense ratio with 475 companies, with a 18.37% weight in China, 14.82% in Brazil and 12.36% in Taiwan.SPDR S&P Emerging Markets (GMM), STBMEMU Fund Detail | SSgA Funds - Fund Detail  SSGA also has several sub-categories of emerging market ETFs such as SPDR BRIC 50 and  and SPDR Emerging Middle East and Africa. SPDR S&P BRIC 40 ETF (BIK) Fund Detail | SSgA Funds - Fund DetailSPDR S&P Emerging Middle East & Africa ETF (GAF), STBMMEU Fund Detail | SSgA Funds - Fund Detail 
The SPDR BRIC only has 40 holdings, an expense ratio of .4 rising to .5 in 1/2009, and  47% in China and 26% in Brazil.

Compare the SPDR BRIC to the this one.  Claymore also has an ETF focusing on BRIC (Brazil, Russia, India and China) that has 86 securities and 54% weight to Brazil and 32.73% to China, with an expense ratio of .6%.Summary - Claymore/BNY BRIC ETF - EEB
 For smaller Chinese companies, I am considering an odd lot purchase in Claymore's China Small Cap Index (HAO) but only when the market value narrows to the NAV,Summary - Claymore/AlphaShare China Small Cap Index ETF - HAO

The category of emerging markets is high risk and volatile.  By carving the total market that VWO covers into sub-categories, the risk expands.   Yes, BIK, the SSGA SPDR BRIC, was up almost 10% today to 15.50 but it was at 34 five months ago.  The BRIC ETF from Claymore was up 7.6% today to 26.89 down from a 52 week high of  58.29.  And it rose from about 25 in January 2006 to 58 in  October 2007.

I only allocate a very small percentage of assets to this category and will trade it frequently, hoping to avoid the frequent downdrafts recently experienced by all of these funds.   
This is not a buy and hold category for me, never has been and never will be, but a category that has to be traded in my view. I try to avoid 70 to 80% "corrections" and I did for this asset class, harvesting my gains prior to the start of 2008.   I will only use mutual funds or ETFs in the emerging market category, except I will buy about 3 stocks  from Brazil and 1 from Chile.   You can not get greedy, or refuse to manage the investment.  Gains have to be harvested and re-entry points have to be guess at sometime after one of the periodic 50 to 80% corrections.  There is no telling when the bottom will be put in but now seemed like a good day to me to edge ever so slightly back into this extremely volatile asset class.

  In these blogs, I am acting as an unpaid financial journalist and an occasional ornery political commentator.    This is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a blog explaining my reasons.  The sale may before or after the blog.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  Different research would need to be done on ETFS including reviewing expense ratios, holdings, suitability in an overall plan for a particular investor, overlap with existing holdings (are their significant overlaps?) and volatility of the asset class.  In this blog, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all blogs written by me may not be suitable for others based on their unique financial position and risk profile.  In this post, I identify several ETFs that are available in the emerging market category and have linked any reader to the pertinent sites for more research.  Each one has its own advantages and disadvantages which would need to be evaluated.  All would be extremely volatile  ETFs.  


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