The emerging markets have done phenomenal over the last few years. Everyone is starting to add these ETFs to their portfolios (maybe this is a signal of the top?). If you think U.S. equities are getting into irrational exuberance mode, they're not holding a candle to what's going on elsewhere. Fortunately, we all have access to these markets through a number of emerging market ETFs that have come to be even this year.
One thing that strikes me as interesting, and fits in with my previous article about actively managed ETFs is that Claymore has just released "Country Rotation ETF" (CRO). Here's some information from the "Fact Guide".
"The Zacks Country Rotation Index uses a proprietary quantitative methodology developed by Zacks to seek to determine those countries with potentially superior risk-return profiles and within those countries select a basket of stocks. The Index is designed to select and weight a group of
stocks which have the potential on a risk-adjusted basis to outperform the MSCI EAFE Index and other developed international benchmark indices."
"The Index constituent selection methodology utilizes multi-factor proprietary selection rules to identify those countries that offer the greatest potential from a risk/return perspective. The approach is specifically designed to enhance investment applications and investability. The Index is adjusted semiannually."
This all sounds quite nice. So how is this not actively managed?
On another note, Zacks is a well respected market research company. Their indexes are tracked in other ETFs as well. Again, quite nice, however, this doesn't necessarily mean market outperformance. As an example, PZJ tracks the Zack's small cap index. Their proprietary algorithm for ranking picks the best small cap stocks who have had positive earnings revisions. They claim that statistically those who blow out earnings are going to continue to do so and as a result, outperform. I've compared PZJ against IWM (Russell 2000 ETF) which is the small cap benchmark.
It doesn't seem to be the case, at least not over the last year. What I'm getting at here is that with a very extended emerging market that has shown signs of cracking, I wouldn't be anywhere near all in. And I'm not really lulled by this proprietary ranking either. Time will tell if Zack's research will outperform here. I'm keeping my eye on it.
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