Perhaps mercifully the week ahead will be a short one, reduced
to four trading days because of New Year's Day holiday. Again, that
might be a good thing given the performance of stocks and riskier
assets last week.
Stocks tumbled for a fifth consecutive day on Friday with the
S&P 500 and the Dow Jones Industrial Average sliding by more
than one percent each. The S&P 500 is in the midst of a
five-day skid, its longest since September, and little relief is in
That is because, at least as of this writing, Democrats and
Republicans remained at odds over a fiscal cliff resolution.
Investors do not need to hear this again: Time is running out.
Policymakers are literally down to a matter of hours before scores
of Bush-era tax cuts expire and almost $110 billion in spending
reductions hit. That number is just for January. The longer the
fiscal cliff remains unsolved, odds increase that the full $600
billion in government spending cuts will be seen, draining the U.S.
economy in the process.
Fiscal cliff headlines mean this could be a tricky week for the
bulls and that is a kind assessment. Regardless of what happens on
Capitol Hill, expect the following
to be in play.
WisdomTree Japan Hedged Equity Fund (NYSE:
) The WisdomTree Japan Hedged Equity Fund represents one way of
skirting some of the fiscal cliff drama. That is the case because
this ETF's bullish performance in recent weeks is tied solely to
expectations that new Japanese Prime Minister
will be successful at forcing the Bank of Japan to engineer at
least two percent inflation and unlimited, yen-weakening monetary
A weaker yen is good Japan's exporters, not so much for the
importers, and DXJ capitalizes on that theme. And capitalize is
exactly what DXJ has done. While U.S. stocks were beaten up last
week, this ETF gained almost 5.5 percent.
iShares MSCI Emerging Markets Minimum Volatility Index Fund
) Even in the face of all the fiscal cliff madness, some of the
marquee diversified emerging markets ETFs have found ways to hold
up. For example, the iShares MSCI Emerging Markets Index Fund
) lost 0.16 percent week, a performance that looks quite compared
to the S&P 500.
The iShares MSCI Emerging Markets Minimum Volatility Index Fund
was even better as that ETF found a way to close modestly higher on
the week. EEMV does not attract the same level of attention EEM or
the Vanguard MSCI Emerging Markets ETF (NYSE:
), but EEMV is arguably more useful with the fiscal cliff
dominating the headlines.
There are two reasons for that. First,like EEM and VWO, EEMV
obviously keeps investors out of U.S. stocks, the asset class made
most vulnerable by the fiscal cliff. Second, this the ideal
environment for low volatility ETFs and EEMV's low volatility
objective has proven profitable in recent weeks. Since November 7,
the day after Election Day and the day when fiscal cliff fears
began rising in earnest, EEMV is up more than two percent while the
S&P 500 is off 1.1 percent.
Market Vectors High-Yield Muni ETF (NYSE:
) This is one example of an ETF that may not respond well to news
of fiscal cliff resolution because that resolution could easily
include a significant alteration to the treatment of earned
interest on municipal bond investments. Currently, that interest is
tax-exempt and has been for about a century.
Desperate to generate revenue,
politicians from both parties
have warmed to the idea of changing the tax treatment of
municipal-bond interest. If that happens and the news arrives this
week, HYD and its rival municipal bond ETFs could be savagely
For more on ETFs, click
(c) 2012 Benzinga.com. Benzinga does not provide investment advice.
All rights reserved.
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