ETFs That Help You Go Global

08/04/2008 12:00 am EST


Carlton Delfeld

Editor, The La Jolla Letter and Pacific Gains

Carlton Delfeld reveals his latest global ETF picks and warns of leveraged funds.

Q. Carlton, in your last newsletter, you commented on the low valuations of several global markets, including Ireland, Singapore, UK, and Sweden, among others. Have you since added any ETFs from these regions to your portfolios?

A. Yes, I have added iShares MSCI South Africa Index (NYSEArca: EZA), iShares MSCI Singapore Index (NYSEArca: EWS), and the iShares MSCI United Kingdom (NYSEArca: EWU). South Africa is in part a currency and commodity play. The United Kingdom is very much predicated on global financial recovery, and Singapore will likely be a core holding.

Q. Each of these regions seems to have its own stress points right now. Do you think that South Africa is particularly vulnerable to a global slowdown? Hasn't Singapore been hit hard by the bear market in China? And isn't the UK just moving into a housing decline that may rival that of the US? 

A. South Africa, China, and the UK are all trading at attractive valuations. They all have challenges. The South Africa Rand has been a strong currency and will come back with higher gold prices, the UK is already moving through the housing issue and its financial-oriented market has already been hammered. Lastly, Singapore is a very high-quality China play. 

Q. For the last couple of years, international investing has been a terrific siren's call to investors, and ETFs have made global investing very easy. But with so many new ETFs (290 introduced in 2007) entering the market last year, do you think the industry has been overdone?

A. Most likely, with almost 800 ETFs on the market, even ETF specialists like me are overwhelmed. That is why we are increasingly focusing on country-specific ETFs and have created for investment professionals, which, at this point, consists of 12 baskets of ETFs that match an investment goal or theme.
Q. What parameters should our readers use to determine if an ETF has the potential to be a good investment for the long-term?

A. First, look at the ETF sponsor's financial standing/staying power, then look at the average daily volume/bid/ask spread. (That will help ensure the ETF is fundamentally strong and has sufficient liquidity-Editor). 

Q. Are there any particular ETFs that you would avoid today? 
A. I would just advise caution with some of the ProShares leveraged ultraETFs. (These ETFs magnify a short or long position, leveraging the returns up to 200%, which can also double your risk if the market doesn't go the way you expect-Editor.)  They should be used as hedges, not trading positions. 

Q. Some of our subscribers are just beginning to "go global". With that in mind, would you recommend a few ETFs that will help them dip their toes in international waters?

A. I would pick out a few conservative country ETFs after learning about the companies in the ETF basket. As well, new investors may find that the iShares MSCI All Country World ETF (Nasdaq: ACWI) may be a place to start, as it has exposure to 2,500 companies in 48 countries.

Q. Carl, do you think people should approach international investing differently now that many global markets have sold off more than the US has? Should they allocate less to international in their portfolios?

A. I like a 50/50 allocation. The fact that international markets have sold off more is a reason to buy, not sell.

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