By all accounts, the economic recovery that began in March 2009 and continued through the first four months of 2010 seemed to be on relatively solid footing. Earnings season in the U.S. got off to a relatively strong start, unemployment rates seemed poised to pull back, and the reluctant agreement of the (relatively) wealthy European economies to back debt-laden Greece seemed be sufficient to ease concerns of a sovereign debt crisis (see Six ETFs To Watch As The Greek Drama Unfolds).
But as confidence was building on the surface, a crisis was brewing just below. Global equity markets have plummeted over the last three days, as fears of a double dip–brushed off in recent weeks–have returned. Moreover, concerns that what started in Greece has already spread throughout Europe have intensified; credit ratings of several much larger European economies are in jeopardy as worst case scenarios have suddenly become not-so-unlikely. Sell-offs on Tuesday and Wednesday paled in comparison to Thursday’s turmoil, as major indexes plunged by as much as 9% during the day before recovering ground in late trading.
The tumultuous week has struck fear in many investors, sending them running for the safe havens of gold and Treasuries. But the freefall has also sent bargain hunters into action, as opportunistic investors look to identify assets that have been punished perhaps too severely as pessimism has reigned supreme in recent trading sessions. Among Warren Buffett’s library of investing wisdom is the advice to “be fearful when others are greedy and greedy when others are fearful.” Fear is almost tangible on Wall Street; the VIX (known as the “fear index” in some circles) gained a whopping 32% on Thursday, and has climbed more than 60% in the last three days (see How Not To Use VIX ETFs). So for investors looking to scoop up assets that have been pummeled in recent days, there is no shortage of options.
Winners And Losers
The few winners over the last three sessions have been the traditional safe havens: gold (GLD is up 2.4%), the U.S. dollar (UUP is up 2.9%), and VIX futures (VXX has gained a whopping 28.5%). The big losers among ETFs are too numerous to count, but several funds stand out with exceptionally large dips. Some are predictable, while others that have declined the most in recent sessions are somewhat unexpected. Below, we profile ten ETFs that are among the biggest decliners over the last three days (for comparison, the broad-based SPY is down about 6.2% since Monday):
10. Market Vectors Coal ETF (KOL), Down 11.0%
This ETF tracks the Stowe Coal Index, a benchmark that consists of companies that derive the majority of their revenues from the global coal industry. KOL is perhaps one of the unexpected casualties of the week’s freefall, sinking 11% over three days.
9. Market Vectors Brazil Small-Cap ETF (BRF): Down 11.8%
Despite the fact that an ocean separates Brazil and Europe, South America’s growth engine has been hit hard in recent days. A strengthening dollar has weakened commodity prices, adding further downward pressure to the resource-rich economy.
8. iShares MSCI Australia Index Fund (EWA): Down 12.3%
Much like Brazil, Australia has felt the full force of the chaos in Greece despite its significant geographic separation. The metals and mining intensive EWA has plummeted more than 12% as commodity prices slumped.
7. Global X Copper Miners ETN (COPX): Down 12.5%
COPX is one of the newest U.S.-listed ETFs (it launched late last week) and has also been one of the hardest hit this week. As copper prices have dropped, the outlook for companies engaged in mining the widely-used metal have dimmed considerably. Also sinking this week was the First Trust ISE Global Copper Index (CU), which lost 10.3% over the last three days.
6. First Trust ISE Global Platinum Index Fund (PLTM): Down 12.5%
Platinum miners have also had a rough week, as prices for the metal used widely in catalytic converters have dropped. Like COPX, this ETF is one of the most recent additions to the ETF lineup; it launched in mid-March.
5. iShares MSCI EMU Index (EZU): Down 13.0%
This ETF tracks the MSCI EMU Index, a benchmark that includes countries that have adopted the euro as their currency. A depreciating euro has weighed heavily on European equities in recent days, highlighting the currency exposure baked into many international ETFs (see EFA vs. HEDJ: A Better EAFE ETF?)
4. Market Vectors Russia ETF (RSX): Down 13.7%
Despite its insulation from the euro, Russia ETFs have sunk this week. RSX has a big allocation to the energy sector, so a slide in oil and gas prices have hurt this ETF in recent days (see RSX’s holdings).
3. Emerging Markets Metals & Mining Titans Index Fund (EMT): Down 15.5%
Emerging markets ETFs have been hit hard by the wave of risk aversion that has washed over markets, but metals and mining companies headquartered in developing economies have had the worst of it; EMT has declined by more than 15% since Monday.
2. MSCI Europe Financials Index (EUFN): Down 15.9%
The saying “once burned, twice shy” now applies to financials; after a meltdown in this sector sparked the recession of 2008, investors have sold off financials at the first sign of trouble. The fact that many European banks have significant exposure to Greek debt hasn’t helped EUFN either; this ETF has lost almost 16% in three days.
1. iShares MSCI Spain Index Fund (EWP): Down 16.5%
If we had a pure play Greece ETF, it would probably be near the top (or bottom) of this list. While Greece is obviously the area of most immediate concern, many investors believe Spain may ultimately pose a much larger problem (see What Every Investor Must Know About The Spain ETF).
Disclosure: Long BRF.