ETF Laggards That May Have More Pain Ahead (EWT, IDX, IEZ)
Every now and then, today's laggards become tomorrow's
leaders, but that's a tough scenario to bet on. The reality is
that when markets are moving higher, it's a worthwhile endeavor
for traders to look for the boats whose sails are not being
lifted that much or at all by the broader market's rising tide.
Come correction time, those laggards become excellent shorts.
With the benefit of hindsight, we can now identify ETF
laggards from the January/February rally. Unfortunately for these
funds, their biggest problem isn't that they underperformed
earlier this year. No sir, it's that more declines may be
forthcoming. Consider these laggards for potential shorting
opportunities going forward.
iShares MSCI Taiwan Index Fund (NYSE:
Yes, the iShares MSCI Taiwan Index Fund did move higher earlier
this year, and despite the fact Taiwan really shouldn't be
considered an emerging market any more, it is, at least by MSCI,
and that leads others to view the country as a developing nation
The signal that EWT, which
found its way to a bear market last month
, was in for more declines was that even though it was moving
higher earlier this, it never even came close to threatening its
2011 peak. In the past month, EWT has lost 8.6% compared to 7.4%
for the Vanguard MSCI Emerging Markets ETF.
Market Vectors Indonesia ETF (NYSE:
IDX's action to start 2012
gave away the fact that rough times were ahead
for this ETF
. Indonesia is the largest Southeast Asian economy and IDX is no
shrinking violet of an ETF with $400 million in AUM.
Size didn't matter for IDX earlier this year as ETFs tracking
the Philippines, Thailand and Vietnam all outperformed their
Indonesian rival. Indonesia is a market
investors can and should like over the
, but given IDX's weakness relative to its comparable peers and
the slack performance of the emerging markets universe recently,
patience will be a virtue with Indonesia ETFs.
iShares MSCI Netherlands Investable Market Index Fund
vulnerability of EWN has been noted recently
, but it was clear earlier this year as well.
On the basis of geography, we compared EWN January 1-March 1
performance against the comparable Belgium and Germany ETFs (the
Netherlands borders both countries) and on the basis of both
having AAA credit ratings, we compared EWN against the iShares
MSCI Austria Investable Market Index Fund (NYSE:
). To start the year, the iShares MSCI Germany Index Fund (NYSE:
) offered better than double the returns of EWN while EWO was
superior by about 900 basis points.
) Oil services stocks and ETFs are the quintessential good
news/bad news plays. They're great when oil is moving higher
because they're more sensitive to oil futures than are integrated
oil stocks. Of course, that's the case on the downside as well.
In the past month, IEZ is off 9.5% compared to losses of barely
over 6% for the Energy Select Sector SPDR (NYSE:
) and the iShares S&P Global Energy Index Fund (NYSE:
Making IEZ and its rival funds all the more vulnerable is
margin warning, issued earlier this week
. That type of warning may not be limited to Halliburton and if
it spreads, IEZ will be punished.
For more on ETFs that should be shorted or avoided, please
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