The global economic recovery that began in March 2009 has, at times, seemed too good to be true. Despite continually-rising unemployment rates, government balance sheets pointing towards insolvency, and a lack of truly convincing earnings reports, equity markets climbed continually higher. After last week, it seems that those fears weren’t baseless after all, as crumbling finances in a tiny corner of the euro zone set off a wave of anxiety and unprecedented market declines (see Ten Shocking ETF Charts From The “Flash Crash”).
Last week, as signs that the situation in Greece may be much worse than most had imagined had begun to show, we highlighted six ETFs that could be in for a wild ride as the Greek drama unfolded. Not surprisingly, many of these ETFs were all over the board last week. Below, we check in on the ETFs profiled in Six ETFs To Watch As The Greek Drama Unfolds:
1. SPDR Gold Trust (GLD)
As investors flocked to safe havens last week, gold prices jumped. GLD climbed about 2.5% last week, as bullion prices finished at a five-month high above $1,200 an ounce. Cash continues to flow into the gold SPDR; assets recently topped $45 billion for the first time.
2. SPDR Barclays Capital International Treasury ETF (BWX)
This ETF, which includes government bonds issued by investment grade countries outside the U.S., had a rough week. Greek debt accounts for only a sliver of the fund’s holdings, but several larger European economies (such as Germany, Italy, and Belgium) account for meaningful portions. BWX finished the week down about 3.7%. By comparison, the Barclays 7-10 Year Treasury Index Fund (IEF) finished the week up 1.6%, highlighting the appeal of the dollar over foreign assets.
The euro was rocked last week by fears that the common currency will face a prolonged slide against the U.S. dollar and other major rivals. Some major financial institutions are now projecting that the euro will hit parity against the greenback in 2011, a scenario that would have seemed impossible just a few months ago (see Three ETFs For Euro/Dollar Parity).
As the dollar’s safety became more appealing, UUP emerged as one of the few winners from the recent turmoil; this ETF climbed 3.1% on the week. UDN headed in the opposite direction, losing 3.3%.
4. MSCI Europe Financial Sector Index Fund (EUFN)
Although all sectors of the European economy were hit hard by last week’s developments, financials endured a particularly rough stretch. Concerns over exposure to sovereign debt increased throughout the week, as did worries that big European banks may see their interest margins pinched in coming months. EUFN declined by 16.5% on the week.
5. MSCI Germany Index Fund (EWG)
Germany’s strength has put it in a difficult decision, emerging as a key player in the efforts to assemble a Greek bailout package. Although Germany is in little danger of default, this ETF was punished by its affiliation with the euro zone last week, dropping 10.3%. As dismal as EWG’s performance was last week, it wasn’t even close to being the worst performer in the Europe Equities ETFdb Category; the Italy ETF (EWI) dropped 15.0% while the Spain ETF (EWP) lost 15.7%.
6. iPath S&P 500 VIX Short-Term Futures ETN (VXX)
For the past several months VXX had been an investing black hole, as easing volatility and steep contango in futures markets has steadily eroded value. Last week, VXX rewarded investors who had taken out portfolio insurance, as a spike in the VIX sent this ETN up 39.8% in five days (see VIX ETFs: How Not To Use).
Disclosure: No positions at time of writing.