Investors have fled overseas markets and commodities as Europe's debt crisis eroded the outlook for global growth. But asset managers say that now is the time to be contrarian.
Here's what five asset managers say are the best ways to play foreign and commodity ETFs in the second half of the year.
Mark W. Eicker, chief investment officer of Sterling Global Strategies in Carlsbad, Calif., with $100 million in assets.
The IShares MSCI EAFE Index Fund ( EFA ): The volatile roller coaster ride of the first half of 2012 has shaken investor confidence and has placed the integrity of the major exchanges in question following last month's lackluster Facebook IPO.
Given our value-oriented investment approach, the one ETF that, at its current level, we would own through the end of the year is EFA. While it has picked up steam recently, EFA remains nearly 20% off its 52-week high due to the ongoing European debt crisis. And while the turmoil in Europe could get worse before improving, we believe it will play its way out by the end of the year.
David Allen, portfolio manager at Accuvest Global Advisors in Walnut Creek, Calif., with $420 million in assets.
IShares MSCI South Africa ( EZA ): Viewing the world from the top-down gives us a unique perspective on the relative attractiveness of emerging and developed countries. Our process for evaluating country markets is designed to be consistent, disciplined, and repeatable in an effort to uncover the most attractive country markets.
EZA is our most attractive country currently and likely to remain so for the rest of 2012. Despite having less than attractive valuations, EZA offers investors one of the most balanced profiles of quality fundamentals, accelerating momentum and low risk of any country we follow.
From a fundamental perspective, EZA has the best long-term earnings growth as well as strong return on equity. Their change leading indicators such as internal growth rate, earnings per share and sales per share are consistently above average.
In terms of both short- and long-term momentum, EZA has been one of the best performing countries over the last 12 months. As of the end of May, South Africa was the second-best performing country in the All Country World Index in local currency. However, in U.S. dollars, EZA is flat against the world during the same time frame.
A relatively undervalued rand makes EZA not only interesting in terms of accelerating price momentum, but also in terms of meaningful currency appreciation for the remainder of 2012. Currency valuation and export competitiveness play a large role in making South Africa one of the least risky countries in our model.
EZA offers investors access to an off the run emerging market with the best overall profile of any of the 30 countries that we currently evaluate. They present a relative attractiveness opportunity, which we are deploying within our actively managed global concentrated and global long/short ETFs,Accuvest Global Opportunities ETF ( ACCU ) andAccuvest Global Long Short ETF ( AGLS ) .
Russ Koesterich, managing director and global chief investment strategist for BlackRock's iShares unit in San Francisco, with $3.684 trillion in assets.
IShares Dividend Emerging Markets Fund ( DVYE ): The dividend play in emerging markets has several advantages: a very high yield relative to developed markets, low payout ratios that suggest sustainability and a lower beta (volatility) relative to a typical emerging markets exposure, which could help cushion the downside should market volatility remain high.
Valuations are at a 20% discount to developed markets, which is an attractive entry point, historically speaking. Inflation is also decelerating, providing for the possibility of rising multiples in the back half of the year. And while emerging market growth is likely to be soft in the near term, it should bottom out in the third quarter of 2012 and will start to accelerate.
Therefore, current levels are an attractive opportunity to add to long-term positions, particularly in Latin America, China and Taiwan.
Alex Gurvich, founding member and managing partner at The Rockledge Group and Rockledge Advisors in New York, with $2.6 million in assets.
ProShares Short Oil & Gas ETF (DDG) or shortSPDR Energy Select Sector (XLE): Last year from the January to May period, XLE was the second-best performing sector and a top performing sector for many months before that. What happened?
The world is in a recession and the demand is lower. Oil is trading at around $83 a barrel, quite a bit cheaper than a year ago. Although the U.S. economy is improving somewhat, the demand from Europe and economic slowing in China are the key drivers slowing down the sector.
There are several additional factors in play that should not be overlooked. One is the continuous infighting between OPEC members regarding production levels, while another is the possibility of military conflict with Iran.
Saudi Arabia and other "moderate" countries are trying to keep the prices even without shocking the world economies even further, while another group, led by Iran and Venezuela, is trying to decrease production in order to push prices higher. The good thing is that the Saudi Arabia block is winning and we will most likely see continued stability of supplies.
On the other hand, the chances for a possibility of military conflict with Iran have actually increased since the negotiation between the U.S., our allies and Iran have pretty much broken down. If there is a conflict, oil prices will skyrocket.
Adrian Day, founder of Adrian Day Asset Management, Annapolis, Md., with $170 million in assets.
SPDR Gold Trust (GLD): GLD is a straightforward idea. Since it invests exclusively in gold bullion, it is an investment in gold. We like gold because the easy money policies being pursued by central banks around the world, from China and Japan to the European Central Bank and the Fed are supportive of gold and likely to continue.
Whatever the likely developments in Europe -- whether Greece stays in the eurozone or Spain seeks more bailout funds or contagion spreads to Italy -- the outcome is likely to be easier money.
Central banks have become gold buyers. Emerging nations are adding to their underweighted gold holdings to diversify out of the dollar. Countries from Mexico to Uzbekistan have bought more gold over the past few months.
Investors around the world distrust their national currencies, as most countries pursue a beggar-thy-neighbor approach to devaluing their currencies, while current interest rates do not compensate for that risk. If everyone devalues, currency values stay the same.
That's why competitive devaluations are so pointless, but also damaging. And so all currencies go down against gold. We favor GLD over other gold ETFs because of its liquidity and options.