Chartwell Global ETF Report

U.S. stocks moved lower Friday on unusually heavy volume. The Dow fell 1.4% for the week, as the S&P 500 lost 1.1% and the Nasdaq 0.6%. The Russell 2000, which tracks small-cap companies, was down 0.8%. Global markets were also down about 2% for the week. The Producer Price Index was reported this week at 1.3%, higher than expected and consumer price indicators also indicated pricing pressure which will cause the Fed to hold off cutting rates. Did someone mention the dreaded word – stagflation?.

iShares MSCI Mexico Index (EWW) and the BLDRS Emerging Markets 50 ADR Index (ADRE) were both down 1.3% for the day with Brazil (EWZ) down 1.15%.

iShares Silver Trust (SLV) was up 1.25%, iShares S&P Global Telecommunications (IXP) was up 1.2% and iShares COMEX Gold Trust (IAU) was up 0.90% for the day. At least part of the story has been the continued success of the gold exchange-traded funds, which now hold more than 15 million ounces and 1.4 million ounces of bullion, respectively. Worldwide, buying via the ETFs accounted for almost 19% of the total 43.5 million ounces purchased by investors in 2006.

HealthShares has introduced nine new health ETFs. The non-pharmaceutical healthcare sector has been performing well despite the overall weak market.

Metabolic-Endocrine Disorders Index (HHM)
Autoimmune-Inflammation Index (HHA)
Cancer Index (HHK)
Cardiology Index (HRD)
Composite Index (HHQ)
GI/Gender Health Index (HHU)
Respiratory/Pulmonary Index (HHR)
Neuroscience Index (HHN)
Opthalmology Index (HHZ)

While international markets showed some snap, U.S. markets inched higher Thursday in a much calmer trading session with the Russell 2000 index gaining the most ground back up 1% today and is now off 0.5% on the year.

Tokyos Nikkei 225 climbed 1.1%, In Hong Kong, the Hang Seng Index rose 0.7%, Australias S&P/ASX 200 ended 1.9% higher, Chinas Shanghai Composite Index finished 1.6% higher, Seouls Kospi added 1.4% and Taiwans Weighted Price Index traded 1.7% higher. European markets did even better with as the pan-European Dow Jones Stoxx 600 index climbed 2% with Spain the strongest market up 2.48%.

The best Exchange-traded fund or ETF for the day was the Market Vectors Gold Miners (GDX), a basket of gold mining companies whose shares had been beaten down by the more popular gold ETFs like (IAU). Materials Select Sector SPDR (XLB) was up 1.95% and the iShares MSCI Australia Index (EWA) rebounded up 1.75%. Lower oil prices led to iPath Goldman Sachs Crude Oil TR Idx ETN (OIL) being the worst ETF of the day down 1.03%.

TD Ameritrade (NasdaqGS:AMTD) plans to offer an ETF that rebalances frequently. The ETF will be a "life cycle" ETF with a target date for the investor, who will choose a year close to when he plans to retire. Life-cycle funds invest in multiple asset classes and become more conservative as time passes. Xshares Advisors is listed as the investment adviser for the Ameritrade ETFs.

PowerShares has another kind of asset allocation ETF in registration, based on risk. The ETF will be based on a set of indexes chosen monthly by a manager. Instead of creating an ETF made up of other ETFs, this one will invest directly in the underlying securities, duplicating the managers choices.

After the Dow Jones Industrial Average posted its second-biggest drop in nearly four years on Tuesday, the Dow slipped below the 12,000 mark intraday on Wednesday before rebounding and joining the S&P 500 and Nasdaq to finish in positive territory. In a reversal of yesterdays fortunes, it was Asia and Europe that lost their footing with markets and exchange-traded funds across the regions down significantly.

In Mumbai, the Bombay Stock Exchanges 30-stock Sensitive Index, or Sensex, dropped 3.5%. More-developed markets also dropped. Singapore's benchmark Straits Times Index shed 3.3% and Hong Kongs benchmark Hang Seng Index fell 2.6%. The pan-European Dow Jones Stoxx 600 index dropped 2.5% with broad-selling pressure across all sectors and its banking sector losing 3.4%.

After U.S. financial sector ETFs tumbled on average 3.2% yesterday, fear of contagion from the subprime mortgage group sent the sector down as much as 1.5% today before it recovered pulling the rest of the market with it.

This is an opportunity to take a position in global and international financial ETFs since they are attractively priced and the vast majority of the highest weighted companies will not be substantially impacted by even the worst case scenario for the U.S. subprime market.

Sensing that the real estate negativity was out of proportion to the risk, investors lifted the iShares Dow Jones US Home Construction (ITB) up 3.13% for the day. The iShares FTSE/Xinhua China 25 Index (FXI) also broke ranks with the rest of Asia as it rose 2.25% for the day. Latin America was mixed but the iShares MSCI Brazil Index (EWZ) and iShares MSCI Mexico Index (EWW) were both up 1.8%.

This past weeks volatility is showing that markets are not going in lockstep but moving in unpredictable and inconsistent manner raising the value of global diversification. Investors are likely repositioning assets to levels they are comfortable with over a longer time horizon.
In fact, an examination into flows into exchange traded funds, or ETFs, signals that According to fund tracker TrimTabs, U.S. ETFs registered $1.4 billion of inflows in the first five days of March -- while global ETFs posted outflows of about $1.4 billion. This is backward looking data indicates that portfolio managers are rotating into U.S. securities and away from foreign markets.

On Tuesday, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index were each off about 2% for the day. Nasdaq is 2.7% lower on the year. Each of the three indexes suffered its second-biggest decline of the year.

The Russell 2000 index, which focuses on small stocks, ended down 2.5%. The culprits were weak retail-sales data and the report that delinquency rates for subprime adjustable-rate mortgages reached 14.44% in the fourth quarter of last year, jumping 1.22 percentage points in three months. Investors in European markets and exchange-traded funds fared better as markets fell an average 1% with no markets in positive territory for the day. Asian markets and ETFs were split with Japan down after three straight up sessions and Taiwan, Thailand, Philippines, India and China up for the day. Oddly, some lower risk, higher quality markets in Asia had a rougher time today.

It was telling that the iShares Lehman 20+ Year Treasury Bond (TLT) was, aside from the short ETFs, the best performing ETF for the day up 0.60%. The two hardest hit ETFs were the iShares MSCI Malaysia Index (EWM) was down 4.97% and iShares MSCI South Africa Index (EZA) was down 5.65%.

This years more volatile market is driving investors to search for ways to hedge their portfolios but a March 5th report from Merrill Lynch shows that many asset classes are now correlated. Merrill suggests five areas that may work to buffer your portfolio: high-quality government and corporate bonds, cash, commodities, gold and, within the stock market, the consumer staples sector. The Consumer Staples Select SPDR (XLP) did not work very well today since it was down 1.9%.

The Chartwell ETF Advisor also uses modest amounts of inverse or short ETFs in some of its portfolios. These go opposite market indexes. For example, the Short S&P500 ProShares (SH) ETF was up 2.09% today.


.

Who says that global equity markets all move together? While U.S. markets got their sea legs during a lackluster Monday, Asia showed strength and independence. Latin America and Europe were down across the board with the pan-European Dow Jones Stoxx 600 index falling 0.4% at 366.02.

It seems that Asia is not overly concerned about the U.S. housing market as Tokyos 225-issue Nikkei average ended 0.8% higher at 17292.39. Hong Kong's Hang Seng Index closed 1.6% higher at 19442.42. In Tokyo currency trading, the dollar fell to ¥118.18 in late afternoon trading. Australias S&P/ASX 200 finished 1% higher at 5891.00 and South Koreas Kopsi ended up 1.3% at 1441.33. Singapores Straits Times Index finished up 1.2% at 3182.68 and Taiwan's Weighted Price Index closed 0.8% higher at 7629.15. To top off the welcome news for still jittery Asian investors, Chinas Shanghai Composite Index ended 0.6% higher at 2954.91.

Some of the exchange-traded funds that track these indexes led the day with the iShares MSCI Australia Index (EWA) was up 2.56%, the iShares MSCI South Korea Index (EWY) was up 2.03% and the iShares MSCI South Korea Index (PGJ) finished the day up 2.02% though still down 3.4% so far this year. With all the talk about the weak subprime mortgage sector, it is no surprise to fund the iShares Dow Jones US Home Construction (ITB) as the weakest ETF of the day down 3.23%.

In a crowded ETF marketplace, First Trusts stable of ETFs may not be getting due credit for a common sense approach to weighting companies in their ETF baskets. Take the Amex® Biotechnology Index Fund (FBT) ETF which contains 20 biotech companies. Rather than a fancy formula or conventional market value weighting, First Trust just weights them roughly equally. I have often thought that there is an opportunity for an ETF family that did this across the board. Especially in this uncertain sector, is it possible to predict the winners? The companies selected for the basket area cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services.

FBT was launched last June at $20 at closed today at $22.30. Investors should watch this ETF and consider it as more conservative than market cap weighted competitors. I always have trouble getting over valuations in the biotech sector which of course always look expensive but the recent pullback may be an opportunity. The average company in the FBT basket is trading at ten times sales and five times book. Below is this ETFs top holdings and chart.


Holdings
Percent (%)
Gilead Sciences, Inc.
5.93
Millipore Corporation
5.86
Invitrogen Corporation
5.78
Affymetrix, Inc.
5.72
ImClone Systems Incorporated
5.37
Amylin Pharmaceuticals, Inc.
5.28
Millennium Pharmaceuticals, Inc.
5.24
Celgene Corporation
5.15
Genentech, Inc.
5.06
MedImmune, Inc.
5.05