Three ETFs To Watch This Week: EGPT, TIP, EWA

by on February 14, 2011 | ETFs Mentioned:

Last week was relatively quiet on the domestic front, with most major indexes posting a string of relatively uneventful sessions. The real action came overseas, where investors kept a careful eye on the development in Egypt, which have cast uncertainty over much of the global economy for the last few weeks. After Mubarak stepped down late in the week and transferred power to the military, the stage has been set for an eventful week of trading in Cairo and elsewhere in the region.

On the home front, coming days will bring a flurry of earnings announcements and a slew of key economic data reports as well. With no shortage of key developments this week, a number of ETFs figure to be active in the sessions ahead. Below, we profile three funds that could see particularly high activity in the coming week:

Market Vectors Egypt Index ETF (EGPT)

Why EGPT Will Be In Focus: Recent political developments have obviously brought Egyptian equities into the spotlight, but the extra focus on EGPT this week will be due as well to some technical issues facing the only pure play Egypt ETF available to U.S. investors. With the Egyptian Stock Exchange closed since January 27 due to the unrest, Van Eck was forced to suspend creations of the suddenly popular fund (EGPT had just $12 million in assets prior to the beginning of the protests in Cairo). With access to Egyptian stocks restricted, investors have turned to EGPT to express their opinions on the market value of Egyptian stocks–even though a huge amount of the fund’s portfolio is tied up in cash that couldn’t be deployed before trading was suspended [see The Egypt ETF's Wacky Premium].

EGPT closed Friday at a premium of nearly 15% to its NAV, but that huge figure doesn’t reflect a lack of liquidity in the fund (in fact, more than 1.5 million shares traded hands). Rather, the NAV reflects stale data, while the price of the ETF reflects the market’s opinion on there the underlying securities will be priced when trading resumes. In other words, ETFs are acting as price discovery mechanisms. With the Egyptian exchange expected to reopen on Wednesday, we should get a feel for just how efficient the price discover process conducted through EGPT was carried out. The premium will soon be gone one way or another, and EGPT should be incredibly active as investors sort through the reopening.

iShares Barclays TIPS Bond Fund (TIP)

Why TIP Will Be In Focus: The runaway inflation that many investors were anticipating heading into 2011 never really materialized, but concerns about an upcoming uptick in prices remains very much in tact. With food prices climbing throughout the world and some emerging markets making aggressive efforts to control inflation, anxiety is definitely on the upswing. The coming week should shed some more light on the “inflation situation,” with minutes from the latest Fed meeting set to be released on Wednesday afternoon. Though the consensus opinion is that a rate hike is several months away at the earliest, a look inside the Fed’s discussions can reveal how concerned the central bankers are about a potential surge in prices.

Thursday morning will bring the release of CPI and core CPI numbers, with the market expecting relatively tame readings from both. An upside surprise could spark a run into asset classes viewed as safe havens during inflationary environments, including precious metals and TIPS [see all ETFs in the Inflation Protected Bonds ETFdb Category].

iShares MSCI Australia Index Fund (EWA)

Why EWA Will Be In Focus: Mining giant BHP Billiton, one of the largest publicly-traded Australian companies, is scheduled to report earnings on Tuesday. Analysts generally expect revenue and profit to surge, reflecting a steep run-up in metals prices over the last several months. Revenue for the first half of the fiscal year is projected to top $34 billion, up close to 40% from the same period last year. Analysts expect EBITDA of $18.58 billion, an increase of more than 70% from the same period a year ago.

Investors will be anxious to hear the company’s plans for buying back stock. Rival Rio Tinto recently unveiled a $5 billion buyback plan, and some analysts believe that Billiton will announce plans to repurchase up to $10 billion of its own stock. The pressure is also on to boost the company’s dividend, especially after Rio’s annual dividend was 20% higher than it had previously indicated. If the company doesn’t announce plans to repurchase stock or boost dividends, suspicions of coming merger activity could jump.

Billiton is the largest individual holding of EWA, accounting for more than 15% of total assets. Rio Tinto accounts for just under 4% of the fund’s assets [see all Australia ETFs].

Disclosure: No positions at time of writing.