Market Exposure Via ETFs

Looking to trade hot markets but wondering how to do it outside of futures? More times than not the hot, and cold, markets will be indicated by exchange-traded funds (ETFs) that follow stocks from a particular country.

51 ETFs now track stock markets from specific countries giving a good indication of growth and decline in the underlying market.

So far this year, equities from Brazil (Ticker: EWZ) are ahead by a sizzling 22.4 percent, Canada is (Ticker: EWC) up by 10.0 percent and Taiwan (Ticker: EWT) has jumped 9.4 percent. Stock markets of underperforming countries include China (Ticker: GXC) which is off by 12.6 percent, South Korea (Ticker: EWY) is down 11.1 percent, and Malaysia (Ticker: EWM) has declined by 9.2 percent.

What can help you to choose the best country ETFs?

Here are a few things to keep in mind:

Country funds are often industry sector bets

With most single country ETFs, you aren’t just betting on a country’s equity market but also on a specific industry sector. For example, 57.80 percent of EWZ’s sector representation is to basic materials and energy. This fund will be acutely affected by any rise or fall in commodity prices.

Country funds carry unique risks

Many countries don’t have large, deep and diverse stock markets like that of the U.S. and other developed nations. It’s common for single country ETFs to own just a handful of stocks and to be overweighted in just the largest of those companies. Another risk factor to consider is geo-political risks that can sometimes come into play. All of this may create unwanted volatility inside your portfolio.

Country funds are more expensive than broadly diversified international funds

According to ETFguide.com, the average annual expense ratio for country ETFs is 0.58 percent compared to just 0.47 percent for broad equity international funds. Can the higher ownership costs of country ETFs be overcome with better performance? There are no definitive answers.

Equally important is a clear understanding of the different investment approaches to equity exposure.

The iShares offered by Barclays Global Investors largely follow MSCI country indexes, which may attempt to represent a certain market, but not necessarily the same exact performance of a particular country’s leading benchmark. In contrast, Northern Trust recently launched a series of single country ETFs that follow established equity benchmarks in various countries.

Where do country ETFs fit into your investment plan?

After you’ve laid the foundation of your portfolio to a diversified mix of funds that cover the major asset classes, single country ETFs can be used as a handy tool.

For example, if you feel that Canadian stocks are the place to be over the next few years, you can overlay EWC onto your current portfolio positions. In other words, you can overweight countries you believe offer the best opportunities.

If you’re too timid to invest in single country ETFs a better approach for most investors is to just go with a broadly diversified international fund. Instead of trying to guess which areas are the best, you can leave the country picks up to someone else.

More Information at www.etfguide.com

Flowers In Their Hair?

It has always been an uneasy alliance between commerce and the environmental community, but it seems, even in this time of hightened awareness and high oil prices, that there has been a decline in investments in clean technology.

According to research group New Energy Finance, private equity investment in clean energy solutions dropped by more than two thirds for the first quarter of this year. Dropping from $2.5bn from $3.7bn in the same period last year, commentators are blaming the credit crunch and global jitters for the decline.

Buyout groups are the main culprits with private equity investment slipping by 65%. Venture capital groups, however, increased investment from $1.2bn to $1.5bn compared to the same period last year.

"Some assets are overvalued with too much money chasing too many transactions in venture capital. There is more supply in the market than last year, with investors paying top prices for assets" said Mortimer Menzel, partner and head of merchant bank Augusta & Co's renewable energy practice.

"Vendors recognise there is a boom and want to sell to capitalise on high valuations" he added.

Initiatives are on the go, however, with Kohlberg, Kravis, Roberts, the buy-out giant, last week pledging support for the global green agenda after teaming up with Environmental Defense Fund to improve the environmental performance of KKR's portfolio companies.

Companies will, no doubt, begin to increasingly focus on this area when the markets return to normal, with several firms setting up dedicated investment departments to seek out opportunities.

I can't see the board of Kohlberg, Kravis, Roberts sitting at Glastonbury with flowers in their hair smoking 'herb' but they and others are definately taking this market, and this issue, seriously.