I monitor more than 50 ETFs in my sector rotation work at Wall Street Sector Selector and so I’m keenly aware of top performing ETFs and sectors. And I’d like to share the benefits of my research with you, with the understanding that this is not an investment recommendation or that there is any guarantee at all that this ETF would make a good investment going forward. As it’s always said, “past performance is no guarantee of future performance.”
That being said,
The ETF of the Month is (drum roll, please) EEB, Claymore/BNY BRIC.
For the month of April, EEB was up 16.1% and over the last 12 months, this odd sounding ETF was up a whopping 62.5%!
So what is EEB and why has it been so hot?
EEB is offered by the Claymore family of Exchange Traded Funds and tracks the performance of an equity index known as the Bank of New York Mellon BRIC Select ADR Index. It invests in American depository receipts of companies residing in Brazil, Russia, India and China.
BRIC is an acronym for Brazil, Russia, India and China and so is a basket of the leading emerging market countries in the world. These countries boast scorching economies, vast natural resources and agricultural commodities that are in a super bull market along with an exploding middle class hungry to consume consumer products, cars and the oil to power them.
Risk and Reward
Obviously the rewards of EEB have been significant and could continue to be significant, but, as always, reward is accompanied by risk.
And that’s because emerging markets typically are saddled with unstable governments, political unrest, potential restrictions on foreign ownership and the possible confiscation of assets if a less friendly government takes power.
In particular, Brazil has suffered from high inflation and currency devaluations while China has a whole raft of problems that include inflation, pollution and a centralized government that is highly suspicious of foreign meddling in their affairs. India brings with it political and economic uncertainty and high inflation along with ethnic conflict and its location in an unfriendly and unstable part of the world. And, of course, Russia has a huge list of risks including high rates of alcoholism and an unpredictable central government.
ETF Details
EEB trades more than 500,000 shares per day and has total assets of more than $1.1 Billion. Its top holdings are Petroleo Brasileiro, China Mobile, Cia Vale Do Rio Doce, Banco Bradesco, China Life Insurance, Petrochina, Banco Itau and China Petroleum.
Brazil makes up approximately 54% of the fund; China contributes 32%, India 8.9% and Russia 5.3%.
Top sectors include Energy at 25%, Materials at 21%, and Financials at 16%.
This is not a fund for the faint of heart as wild price swings and volatility are the order of the day. Between October, 31, 2007, and January 22, 2008, EEB posted a 31% decline and then rallied back 32% as of May1, 2008 for a 60% swing in five months. Over the same time period, the S&P declined approximately 18% and then rallied back 10% for a total swing of 28%, so with EEB an investor can expect outsized moves in both directions.
In summary, international ETFs have outperformed the US stock market by substantial margins over the past several years and developing economies have been far more potent performers than our own at home. As the developing world grows and gains economic and political power on the global stage, it’s certainly possible that this trend could continue. Investors wanting exposure to the top emerging markets of Brazil, Russia and China could find what they’re looking for in EEB from Claymore.
Author’s Note: I don’t currently hold a position in “The ETF of the Month” and I have no relationship with any ETF or ETF company and receive no compensation for describing any of their products.
John Nyaradi is Publisher of Wall Street Sector Selector, an online newsletter specializing in sector rotation trading using Exchange Traded Funds.
Disclaimer:
All material herein is believed to be correct but its accuracy is not guaranteed. This article represents solely the opinions of John Nyaradi and readers are encouraged to consult their investment advisors prior to making any investment decisions. All information herein is for general informational purposes only. The information is of an impersonal nature and should not be construed as individualized advice or investment recommendations. There is risk of loss in all trading and readers are encouraged to read the full disclosure statement at http://www.wallstreetsectorselector.com/disclosure.html. None of the information in this article is intended to be investment advice or any kind or offer or solicitation to buy, sell or otherwise invest in any fund, company or security. Nothing herein represents a recommendation, claim, promise, guarantee or warranty regarding the suitability or profitability of any investment.
