Chartwell Global ETF Report

Major indexes around the world finished trading on Friday down about 5% for the week. While most of the headlines this week were about sharp stock market and ETF pullbacks in America and Asia, European equity markets gave up opening gains and turned lower today, heading for weekly losses of nearly 5 per cent as turbulent trading resumed. Today, very few ETFs were up for the day with of course the exception of the inverse ETFs. Silver (SLV) lost 4.98% for the day.

One ETF that stood out was the Rydex Japanese Yen ETF (FXY) that was up 0.66% for the day. Japans currency has already gained almost 3 per cent this week, the biggest increase since late 2005, and was at 117.66 against the dollar in late trading in Tokyo on Friday. On Thursday, the yen reached 116.97 against the dollar, the highest since December 13, after rebounding from a four-year low of 122.19 at the end of January this year.

This stronger yen has led to weaker equity markets because it hurts large Japanese exporters and exports have been the key impetus behind Japan's stronger economic growth. A stronger yen also means that the foreign revenue from companies like Toyota will appear in financial reports as weaker when say dollar numbers are translated into yen for reporting purposes. But for Japan ETF investors, a stronger yen will somewhat offset these negatives since the ETFs are not hedged meaning a stronger yen will help returns.

For global exchange-traded fund or ETF global investors and advisors, this has been a humbling and hand wringing week. But not everything went down this week. Up, went stock market volatility, credit spreads on corporate bonds, as well as emerging-market debt and the price of default insurance and, as mentioned, the value of the yen.

But something else went up this week and that is investor awareness of risk and the inescapable fact that markets fluctuate and that returns for different assets move in cycles. Global ETF portfolios that do not incorporate these facts will, over time, run amok. My view is that we are entering a more difficult stage of global investing during which investors will need to be more contrarian, have more hedging positions in their portfolio and have good risk management tools in place. Contact me if you would like a copy of my most recent article "How to Build Your Own Global ETF Hedge Portfolio".

A new exchange-traded fund or ETF called the PowerShares DWA Technical Leaders Portfolio (Symbol: PDP) which is based on the Dorsey Wright Technical Leaders Index started trading today. Dorsey Wright uses point & figure charting that takes into account, among other factors, the performance of each of the 3,000 companies in the eligible universe as compared to a benchmark index.

U.S. markets steadied on Wednesday with most major indexes up about 0.5% and are flat for the year. Overseas results were mixed. Japan's Nikkei stock average fell 2.85 percent, while Hong Kong's Heng Seng index ended down 2.46 percent. The benchmark Shanghai Composite Index rose 3.94 percent. Britain's FTSE 100 closed down 1.82 percent, Germany's DAX index finished down 1.53 percent, and France's CAC-40 was down 1.29 percent.

GDP numbers were revised downward on inventory adjustments but most troubling to the market was that new-home sales plunged 17% in January, falling to the lowest level in nearly four years. There are also signs that the carry trade whereby investors borrow in low interest rate currencies like the yen and Swiss franc and then invest in higher risk, higher rate currencies and equities may be unwinding with the money coming home.

Many international exchange-traded funds or ETFs clawed back a fair portion of yesterdays losses. The China ETF (FXI) was up 4.32%, India (INP) was up 3.59%, South Africa (EZA) up 3.08%, Taiwan (EWT) up 2.8% and Mexico (EWW) was up 2.75%. The streetTracks TITAN ETF (DGT) which tracks the largest companies was also up 2.76% for the day. The new First Trust Nasdaq 100 ex-tech ETF (QQXT) took it on the chin today down 4.27% and as expected with the weak new home construction numbers, the iShares Dow US Home Construction ETF (ITB) was down 1.57%. The Chartwell ETF Advisor added a short position in this sector to one of its portfolios earlier in the week.

After a day like yesterday, some ETF investors may wish they had some of the new UltraShort ProShares ETFs sprinkled in some of their portfolios to act as a shock absorber. These leveraged ETFs that move 200% with (Ultra) or inversely (Ultra Short) to Russell indexes.
Ultra Russell 1000 Value (UVG) Ultra Russell 1000 Growth (UKF) Ultra Russell MidCap Value (UVU) Ultra Russell MidCap Growth (UKW) Ultra Russell 2000 Value (UVT) Ultra Russell 2000 Growth (UKK) UltraShort Russell 1000 Value (SJF) UltraShort Russell 1000 Growth (SFK) UltraShort Russell MidCap Value (SJL) UltraShort Russell MidCap Growth (SDK).

I am looking forward to some inverse ETFs that cover international and emerging markets.

While major U.S. indexes lost 3-4% on Tuesday, Asian exchange-traded funds or ETFs fell much further led by the China ETF (FXI) which lost 9.9% for the day. The Chartwell ETF Advisor had sold FXI earlier this year to lock in gains from its 84% rise in 2006.

The Malaysian ETF (EWM) which up to today had been the best performing market in Asia fell back 8.1% and the second best market Singapore (EWS) lost 7.8% which reflected the seemingly indiscriminate selling. The Hong Kong ETF (EWH) fell 7.4%, Taiwan (EWT) lost 5.2% of its value and South Korea (EWY) was down 6.4% for the day.

But the selling was not confined to Asia or emerging markets for that matter. The Swiss ETF (EWL) was down 4.96%, Australia (EWA) was down 4.75% and Sweden (EWD) was down 6.24%. The Brazil ETF (EWZ) lost 8.6%. Japan (EWJ) was one of the best performers down 2.38% for the day.

The First Trust family of exchange-traded funds or ETFs announced yesterday through a press release that it is working with the International Securities Exchange to introduce three new ETFs. One ETF will track a basket of companies that derive a significant portion of their revenue from the water business. Another ETF will do the same for companies in the natural gas industry. Both of these ETFs are expected to be available to investors in May of this year and do not yet have ticker symbols. The third ETF will be launched later in the year is a Chindia (China -India) ETF which will track a basket of Indian and Chinese companies that are listed on U.S. exchanges. These three new ETFs will add to the stable of First Portfolio's twelve ETFs now available to ETF investors

American markets on Monday closed down across the board with transport and financial sectors hit hardest. Some markets in Asia welcomed back the first day of trading with up markets. The Taiwan market was up 1.16% and the Shanghai Composite index rose 1.67% for the day. Japan and Australia (EWA) also finished slightly up. European markets were up across the board with exception of Switzerland (EWL). Markets in Chile and Mexico lost 1.6%.

The utilities ETFs were the top performers on Monday with the Utilities HOLDRS (UTH) up 3.02 % and the SPDR Utilities ETF (XLU) 2.38% and 23.25% during the past year. The Mexico ETF (EWW) lost 2.52% followed by the Dow Jones Transportation ETF (IYT) down 2.2%.

The best performing iShares ETFs year to date through Friday’s close were: Malaysia (EWM) up 18.9%, Transportation (IYT) up 13.4%, Cohen & Steers Realty (ICF) up 12.2%, and Singapore (EWS) up 11.2%. The worst were China (FXI) down 3.7%, Global Energy (IXC) down 2.5%, Taiwan (EWT) down 2.1% and US Home Construction (ITB) down 2%. The best performing global sector ETFs during the last 12 months have been Global Telecoms (IXP) up 36%, Global Materials (MXI) up 33% and S&P Global Utilities (JXI) up 30%.

WisdomTrees latest ETFs tilt to companies that have higher net income or earnings yield. The tracking indexes use "core earnings" as defined by Standard & Poor's. Two of these launched last week target the 100 large-cap companies with the highest earnings yields, and the stocks with the lowest P/E ratios: WisdomTree Earnings Top 100 Fund (EEZ) and WisdomTree Low P/E Fund (EZY). The Chartwell ETF Advisor added (EEZ) today to one of its seven model ETF portfolios.