Chartwell Global ETF Report

With markets down in the U.S. and much of the world Friday, it should be no surprise that the big ETF gainers for the day were the new inverse Proshares ETFs. The UltraShort QQQ (QID) was up 3.2% and the UltraShort Russell 2000 (TWM) was up 1.95% for the day. On the downside, the Dow Jones US Home Construction ETF (ITB) was down 2.5% and the India ETN (INP) was down 2.06%. Some emerging country ETFs pulled back today such as Brazil (EWZ) down 1.85%, Mexico (EWW) down 1.84% and China (FXI) down 1.81%.

The big global news is the G-7 powwow over the weekend in Germany with finance ministers and central bankers hand wringing about currency and fiscal imbalances. At the top is the weak Japanese yen and the carry trade which has many nervous about the money going the other way as Japans interest rates rise. European markets reacted negatively to the European Central Bank and Bank of England decision to hold benchmark interest rates steady because of language signaling that next month will see rates hiked.

Assets of all ETFs rose $121.66 billion, or 40.4%, to $422.48 billion in 2006, according to data collected by the Investment Company Institute. The iShares family strengthened its dominance in the ETF market, increasing its market share from 56.5% to 59.5%. The second-largest family, State Street Global Advisors, lost some of its market share, dropping from 28.2% to 24.2% as of the end of 2006. Bank of New York also lost market share, falling from nearly 10% to 6.4%.

On the international front, assets soared 69% to $107.2 billion, as of the end of December 2006. Inflows into emerging market funds sprang 85% year over year to $35 billion. The share of emerging markets ETF assets were dominated by Greater China ETFs but lately investors have been spreading their Asia bets over more countries such as Singapore and Malaysia.

Thursdays ETF trading was dominated by oil jumping to $60, the decision by the European Central Bank and the Bank of England to keep benchmark interest rates steady and continued weakness in the Japanese yen. Oil-oriented commodity ETFs such as Powershares ETFs (DBO) and (DBE) were up more than 3% for the day. Japan ETFs such as the iShares (EWJ) and (ITF) as well as WisdomTrees cash dividend based Japan ETFs (DNL) and (DXJ) fell back between 1.25% to 1.65% for the day.

The upcoming G-7 meetings in Germany may focus on the weak yen issue which helps exporters but is a drag on Japan ETF returns. The yen's slide alone added some $250 million to Toyota operating income during the fourth quarter of 2006. But if growth numbers for Japan’s fourth quarter of 2006 reach 4% as some expect, the yen could snap back a bit but the key to a stronger yen which is down 15% during the past year against the euro is better consumer spending which has been anemic.

There has been an explosion of sector ETFs but the difference between the best performing and worst performing has narrowed. One of the best has been the Market Vectors Steel ETF (SLX) which was up 40% in 2006 and 11.3% so far this year. While metals such as zinc and copper have pulled back from the great gains in 2006, the steel industry still has attractive valuations and solid earnings growth and margins. Goldman Sachs announced they are selling the widely tracked commodity index and two stock-benchmark families to Standard and Poor's and In January 2007, assets of U.S. listed exchange traded funds (ETFs) rose about $5 billion to reach $422 billion.

On Monday the Dow was up slightly, all other major US indices were down, Europe and Japan eked out a gain and Asia was mixed. The top ETF was Malaysia (EWM) which was up 2.6% and is now up 49% for the year. With more than 6.8 million shares traded today it appears that global investors have rotated out of China (FXI) and have moved into markets like Malaysia and Singapore (EWS). The Powershares Clean Energy ETF (PBW) was up 1.86% and Brazil (EWZ) was up just over 1% for the day. South Africa (EZA) was down 1.6% reacting to softer precious metals and commodity prices and Swedish Krona ETF (FXS) which the Chartwell ETF Advisor sold last month was down 1%. A couple of WisdomTree Japan ETFs which weighs companies in the ETF basket by its dividend record also lost ground.

Even though it is the largest Muslim country in the world with over 300 million people, Indonesia is often off the radar screen of most global investors. This is unfortunate since the Indonesian closed-ended ETF (IF) was supercharged in 2006 with the ETF share price up 104%. Since the beginning of the year it has pulled back from its 52 week high of $12.77 to settle today at $11.11. (IF) trades at a 19% premium to its net asset value and its largest holding is Indonesia Telecom which accounts for 23% of the ETF’s holdings. Rich in natural resources, Indonesia has evolved from an authoritarian, centralized regime to a democratic government with elaborate checks and balances.

ProShares launched their much anticipated 22 new exchange traded funds (ETFs) that offer positions that move 200% both up and down relative to their underlying indexes which are the Dow Jones U.S. sector indexes. Powershares brought the new DWA Technical Leaders ETF (PDP) to the market. This ETF tracks the Dorsey Wright Technical Leaders index which includes about 100 companies that demonstrate powerful relative strength characteristics.

I am off to the World Money Show in Orlando tomorrow where I will do an ETF workshop on how to use ETFs to invest overseas and will also speak on how investors can build their own ETF hedge fund.