Bright Spots In The ETF Landscape: Five Funds Holding Their Value In A Wild 2011

by on October 21, 2011 | ETFs Mentioned:

So far, this year has been tough for markets around the globe. Since the downgrade of U.S. credit quality in August, equity markets have become plagued with rampant volatility, discouraging capital inflows and prompting many investors to pull out of the markets entirely. Just when the debt-ceiling drama at home came to an end, euro zone debt-woes stole the spotlight, adding fuel to the fire. Tensions in the debt-stricken currency block overseas have only added to the growing cloud of uncertainty looming over global financial markets.

Investors at home have been digesting platefuls of lackluster economic data, while emerging markets have been brutally beaten down as risk-aversion has become the dominant theme on Wall Street. Even the Fed’s announcement of “Operation Twist” sparked waves of panic-selling in the markets, as investors deemed the latest round of stimulus as far too small in scope to truly boost the sluggish U.S. economy. Amidst this fear, equity ETFs have faced devastating headwinds; some have lost as much as 40% of their value since the year started [see our Simple (But Effective) Safe Haven ETFdb Portfolio]. Below we highlight five equity ETFs that have held up reasonably well throughout the chaos year-to-date (as of 10/19/2011):

  • MSCI Malaysia Index Fund (EWM): This ETF tracks the performance of Malaysian equity markets and it has shed just over 5% year-to-date, which is by no means and impressive return. However, its performance is quite noteworthy considering that the MSCI Emerging Markets Index is down close to 18%. Some might wonder just how EWM has held up so well considering that one third of the funds assets are allocated to the financials sector. Capital inflows to the financials sector from Middle Eastern investors have been keeping this predominantly Islamic nation afloat, while some of its larger neighbors in the region have struggled to retain investor interest in this uncertain economic environment [see EWM Holdings]. Despite its shallow portfolio, EWM has under 50 holdings, this ETF is well diversified from a sector breakdown perspective, which has allowed it to retain its appeal as one of the most lucrative emerging market funds [see Country ETFs With Rock Bottom Unemployment Rates].
  • WisdomTree Japan SmallCap Dividend Fund (DFJ): Japanese stocks have been beaten down this year, with the MSCI Japan Index losing 12% year-to-date. DFJ, however, has managed to lose a little over 2% in this same time period, showcasing the appeal of dividend paying securities in times of market turmoil [see Dividend ETF Investing: Four Critical Factors To Consider]. This ETF has also retained its popularity amongst investors given the diversification benefits and potential for uncorrelated returns associated with the small cap asset class. DFJ boasts a well-rounded portfolio of 500 dividend-paying securities, giving investors unparalleled access to the small cap corner of the Japanese equity market.
  • MSCI New Zealand Investable Market Index Fund (ENZL): This ETF tracks the performances of New Zealand’s equity market, which is up a modest 1% year-to-date. ENZL has truly surpassed expectations and has carved out a reputation as a safe haven so to speak, considering that its wealthier neighbor, Australia, has faced numerous road blocks; the MSCI Australia Index is down close to 10% year-to-date [see New Zealand ETFs In Focus After Credit Downgrade]. ENZL has likely been able to stay afloat thanks to its diverse sector breakdown; the fund is focused on communication services and basic materials companies, which gives it a risk/return profile that’s quite different from most developed country ETFs, which tend focus on multinational financial and energy firms [see ENZL Holdings].
  • Vanguard Utilities ETF (VPU): This ETF is up an impressive 9% year-to-date, versus broad U.S. equity indexes which are fairly flat for the year. The utilities sector is known for relatively low volatility in both directions; the upside potential during bull markets may be limited, but this asset sub-class also tends to hold its value better when markets decline. VPU holds appeal as a safe haven since the demand for the products and services provided by this corner of the market is relatively stable, and Utilities Equities generally have a consistent record of distributions. It’s not much of a surprise to see this ETF shining bright amidst the chaos; VPU provides investors with well-rounded exposure across the domestic utilities sector and the fund recently had a juicy 30-Day SEC yield of 3.97% [see VPU Fact Sheet].
  • PowerShares Dynamic Pharmaceutical Portfolio (PJP): The health care sector is known for attracting capital inflows when equity markets start to get ugly. Pharmaceutical companies in particular have been holding up very well as demand for their products is relatively inelastic, while also offering stable dividend yields, appealing to growth and value investors alike. The S&P Pharmaceuticals Select Industry Index is up 3% year-to-date, while PJP, which employs a fundamental screening methodology, is up close to 10%. PJP’s robust performance is attributable to the fund’s underlying index, which is designed to provide capital appreciation by thoroughly evaluating U.S. pharmaceutical companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors [see The Pharma Four: Similar ETFs, Different Returns].

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Disclosure: No positions at time of writing.