Four Deceiving ETF Performances (EWT, IHY, SCIF)
Looks can be deceiving. So can the performances of stocks and ETFs. Relying on the wrong performance time frame can lead investors to purchase the wrong ETF at the wrong time. Moreover, relying on the wrong time period can keep investors out of the right ETF at the right time.
Imagine this scenario: At first blush, a given ETF looks great. It is is up 30 percent year-to-date in June. So, an investor buys that fund July, but it then declines markedly.
That scenario underscores the limitations of using year-to-date performance as a deciding factor in purchasing (or avoiding) select ETFs. All that glitters is not always gold. In other words, investors need not be seduced or dissuaded by year-to-date performances. Below are four examples that illustrate this point.
Market Vectors India Small-Cap ETF (NYSE: SCIF) Nearly any India ETF could be inserted here. Nonetheless, the Market Vectors India Small-Cap ETF could easily lure unknowing investors into its web of deceit with its approximately 21.3 percent year-to-date gain. That might sound good, but SCIF's year-to-date gain needs to be put into context. Since running from around $9 in early January to just over $14 in late February, SCIF has drifted lower and lower.
SCIF, like other India ETFs, has been afflicted with a gloomy scenario. Global investors have likely become alarmed with the state of the Indian economy. This investor alarm could be warranted, based on India's rising deficits, slowing growth and a tenuous hold on an investment-grade rating.
As a result, SCIF has lost almost 14 percent in the past 90 days. Within this period though, the ETF gained around 13.1 percent in the past month. The cold reality with India ETFs is that they giveth, taketh away and repeat.
iShares MSCI Belgium Investable Market Index Fund (NYSE: EWK) The year-to-date performance of the iShares MSCI Belgium Investable Market Index Fund is arguably quite surprising, as well as deceiving. Belgium is a Eurozone nation and the ability of its economy and equity market to remain resilient, in the face of the region's sovereign debt woes, has been impressive. Relatedly, EWK is up six percent year-to-date.
Without considering the primary driver of this ETF's year-to-date gains, investors could be misguided. Anheuser-Busch InBev (NYSE: BUD) accounts for almost 27 percent of EWK'w weight and is up 27 percent this year. In the past month, the stock is up almost 14 percent, while EWK is not even up one percent. This disparity might indicate that investors who want exposure to Belgium may do well to own Anheuser-Busch InBev instead of EWK.
Market Vectors International High-Yield Bond ETF (NYSE: IHY) The Market Vectors International High-Yield Bond ETF debuted in early April. In the fund's two months of trading, it has lost almost five percent.
IHY's potential problem may not be its junk bond holdings (over 76 percent of the index the ETF tracks is rated non-investment grade by Standard & Poor's). Instead, the fund's biggest near-term hurdle could be its global nature and euro denominated issues, which comprise about a third of its total issues.
Some investors have started to look past those concerns because IHY now has $19.4 million in AUM and has surged 5.4 percent in the past month. Most of the fund's bond issues are dollar-denominated. In addition, Market Vectors expects IHY will pay a monthly dividend. These dividend expectations could indicate that this ETF has some use for income investors that are willing to take on some added risk.
iShares MSCI Taiwan Index Fund (NYSE: EWT) EWT is sporting a year-to-date gain. However, as is the case with other India ETFs, this fund would be negative year-to-date if not for a stellar January-February run. In the past 90 days, EWT has given up around 6.4 percent and the ETF's technical outlook is far from rosy. If EWT trades below $11.60, its technical picture could signal that more downside would be approaching.
For more technical analysis on ETFs, click here.
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