A Trip Around the World with Four Key ETFs

I love to travel, but the constraints of running a business, family obligations and the fondness I have for my hometown of Huntington Beach, California, mostly keep me tethered to my personal fort. Yet not choosing to travel doesn’t stop me from taking a daily trip around the world with exchange-traded funds (ETFs).

To do so, all we need to look at is four key ETFs that will tell us what we need to know about what’s going on in the major markets around the globe. The four ETFs I watch on a daily basis (and you should, too) are the SPDR S&P 500 (SPY), the iShares MSCI EAFE Index (EFA), the iShares MSCI Emerging Markets (EEM) and the iShares China Large Cap (FXI).

Starting here at home with SPY, we can see that after a brisk pullback in early August that took the index below its 50-day moving average, stocks have continued to power to new all-time highs. As far as domestic stocks are concerned, the bull still is very much on the run. Now you have to watch the price to see when that bull runs out of gas, because he always runs out of gas at some point before the next refuel.

To see how things are going in Europe, Australia and the Far East, we can look at the proxy for the biggest equities in those respective markets such as those held in EFA. As you can see here, EFA has tumbled since July, with stocks in the index now trading just slightly above the 200-day moving average.

Weakness in European markets is what’s been dragging EFA down. Until European markets can stage a sustained comeback, there is liable to be more weakness in EFA going forward.

As for emerging market equities of the sort held in EEM, we can see that things have been very good, especially from February through early September. Emerging markets have experienced a pullback during the past couple of weeks, but I suspect that this is more a case of profit taking than it is the beginning of sustained weakness in emerging markets.

Finally, we have China and the large-cap stocks held in FXI. This ETF allows us to take a trip to the world’s second-largest economy to see how stocks pegged to the nation are performing. Much like EEM, China stocks have been on a tear since the spring. Since September, however, there has been some profit taking in FXI.

Once again, I suspect that the pullback is just part of the emerging market volatility and not any start of a material decline in China. In fact, I think that we could be looking at a very good buying opportunity in China and emerging markets on further weakness in the respective segments.

Of course, I don’t plan on jumping the gun here. What we need to do is monitor the price action in these four key ETFs, as each will tell us a lot about the world — and how to invest for maximum success.