Peering Beyond Plain Vanilla

 | Sep 24, 2012 | 10:00 AM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

EEM

,

VWO

In an era when new ETFs are being created at breakneck pace -- including a few that are pegged to some underlying indices that may be questionable -- it can behoove investors to focus at least part of their investment into some of the more liquid funds. In a sense, it's about getting back to basics. When I was with Investor's Business Daily, I would periodically reread How to Make Money in Stocks the growth-investing primer by William O'Neil. It was a good way to refresh my memory on key investing principles.

Similarly, while I've been doing quite a bit of research into small-caps over the past year, lately I've had occasion to delve back in to large-cap land. As the focus of my work is shifting toward ETFs and bigger stocks, I ran some scans to get a bead on the most widely held exchange-traded funds, and how they are performing.

Moving beyond some of the plain vanilla, tried-and-true – such as SPDR S&P 500 (SPY) and iShares S&P 500 Index (IVV) -- I ran some further analytics on a few of the other big, liquid funds. Naturally, some of the global indices have been beaten down, but I wanted to see if there were any worth tracking.

The MSCI Emerging Markets Index Fund (EEM) is one that I wrote about extensively when I covered emerging markets for Real Money. It has not popped up on my top technical scans recently, although it is currently showing a glimmer of life, trading above key moving averages.

Top holdings include the overseas-traded shares of Samsung, China Mobile (CHL), Taiwan Semiconductor (TSM), Gazprom (GZPFY), America Movil (AMX), China Construction Bank, Petrobras (PBR), Banco Itau (ITUB) and Vale (VALE).

As a whole, currently this is a batch of poor technical performers. Of those that trade as American depositary receipts (ADRs), Gazprom currently sports the best chart: It recently cleared a classic cup-and-handle pattern, but pulled back as the general market also consolidated. The ADR found support at its five-day exponential moving average, and rebounded on Thursday.

However, I can't get too excited about this name right now -- not while others are clearly outpacing it in terms of price gains. Yet I'm equally unenthusiastic about the EEM at this moment. The ETF itself has market capitalization of $36 billion, and it trades 42 million shares a day, so liquidity is not the issue.

But there's a glaring red flag right now: The EEM's 200-day moving average is below the 50-day. I'd like to see that situation reverse before I'd attempt a purchase. The 50-day line is headed higher, whereas the 200-day line is flattening. That could bode well for a so-called golden cross in the not-so-distant future. If that occurs, EEM could offer a viable technical entry.

Naturally, the Vanguard MSCI Emerging Markets ETF (VWO) is showing essentially identical performance. But be sure to check the expense ratios on these, and on any ETF, if you are choosing between two similar funds.

EEM loses out in that comparison, with an expense ratio of 0.67%. VWO, meanwhile, has an expense ratio of 0.20%. That may not seem like much at first glance, but it can make a difference when you're evaluating the return of an ETF. In addition, although both track the same index, there are usually differences in the actual components of the fund, or in the weightings, at any given time.

Columnist Conversations

Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
Market gets hit from impact of sanctions against Russia for second day in row but manages to rally a bit to en...
We took out some of the high end of support, but I'm still looking at this symmetrical pullback for entries on...
going into trading today roughly 37 million shares of X (US Steel) was held short.today big X has traded 27 mi...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.