Around the World with ETFs

I want to take a little trip around the world this week by looking at a few key charts of exchange-traded funds (ETFs) pegged to various regions of the globe. Let’s start with the action in Europe via the iShares Europe 350 (IEV).

For most of the past year, stocks in Europe have trended steadily higher. The sector had a rough start to 2014 with a late-January sell-off. But since February, we’ve seen a concerted move higher in European stocks. Part of this move higher is due to the confidence that the European Central Bank will come in with its own version of quantitative easing if the economy in the European Union (EU) starts to falter.

Here in the United States, we’ve seen strength in the large-cap segment of the market, including in major indices such as the Dow Jones Industrial Average and the S&P 500. Those respective indices are trading near their all-time highs, but not all segments of the market have followed suit.

Stocks that make up the small-cap segment of the U.S. market, such as those in the iShares Russell 2000 (IWM), have taken a decided turn lower since April and plunged below both the 50- and 200-day moving averages during the past six weeks. The weakness in small-caps is worrisome for the bulls, as it could be the first real sign of a wider sell-off to come for the entire U.S. market.

The real bullish action of late in stocks has come from the emerging markets. The chart here of the iShares MSCI Emerging Markets (EEM) clearly shows the decided uptrend in the sector since mid-March. The buying in EEM has pushed the fund above the 50- and 200-day moving averages, a very bullish sign going forward. Perhaps even more of a bullish signal for the sector is the crossing of the 50-day average above the 200-day, a condition known as a “golden cross.”

One sub-segment of the emerging markets that’s really seen some heavy buying of late is India. Stocks in the sector, as represented by the WisdomTree India Earnings Fund (EPI), have vaulted to multi-year highs. The catalyst here was last week’s election of the pro-business Bharatiya Janata Party, or BJP, and particularly the election of BJP Party leader Narendra Modi as the new prime minister.

The surge higher in emerging markets in general, and specifically in India, reflects two trends that we are currently taking advantage of in the Successful ETF Investing newsletter advisory service. The way we see it, given the modest gains in the United States and Europe this year, and the relatively big gains in emerging markets of late, you need to have at least some exposure to these sectors right now.

So, how much of your portfolio is positioned in emerging markets? If the answer is little or none, then now is the time to start thinking about a little portfolio rotation.