Grow Your Portfolio the Intelligent Way

The ‘Big 3’ ETF Segment Divergence

By Jim Woods

We are just days away from 2015’s halftime, and that’s a good excuse for us to take a look at how what I call the “Big 3” exchange-traded funds (ETFs) have performed this year.

The Big 3 are the SPDR S&P 500 ETF Trust (SPY), the iShares MSCI EAFE ETF (EFA) and the iShares MSCI Emerging Markets ETF (EEM).

The chart below displays each fund’s respective price action since the beginning of the year.


As you can see, stocks in Europe, Australasia and the Far East (EFA) have easily outpaced stocks in the United States and stocks in emerging markets with a 10.04% year-to-date return through June 25.

The preceding chart also clearly shows the big run in emerging markets (EEM) from mid-March through late April. Yet in the case of EEM, the fund has come back down hard after hitting the highs of the year. EEM is up 3.41% this year.

As for domestic equities (SPY), their performance has been far less volatile than EEM, but the halftime result is just about the same. SPY has managed just 3.17% upside since the New Year.

I’m still a firm believer in the potential upside of emerging markets, as I think many of these markets represent outstanding value and growth plays.

As for Europe and the Far East, the latest money-printing schemes by both the European Central Bank (ECB) and the Bank of Japan (BOJ) continue to fuel this segment higher. That tells me that EFA is poised to continue to outperform in the second half of the year.

Finally, with the Federal Reserve now clearly signaling that it will raise interest rates at least once before 2015 expires, that reality is likely to act as a dampener to any potential uptrend in U.S. equities.

This situation could lead to more stagnant returns during the next six months or, worse, it could lead to an exodus — and subsequent correction — in domestic equities.

Want to find out how you can prepare for a Fed-induced equity sell-off? Then check out my Successful ETF Investing newsletter today.

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