Understanding the Change in the Global ETF Climate

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Global Climate Change, ETF Style

This week, the United Nations is hosting what it calls the UN 2014 Climate Summit, a meeting of world leaders for the purpose of dealing with a gradually warming planet. Now, I’ll leave this politically charged event aside for the moment and flip the focus to another kind of global climate change — the one that’s taking place in global equity markets right now.

Over the weekend, we got several reports out of China that indicated that the world’s second-largest economy now is backsliding on its targeted growth rate in the 7.5% annual range. Then there’s the continued slowdown in Europe, which has put downward pressure on the region’s economy and on the equity markets of the European Union (EU).

The slowdown in the global economic climate is currently being reflected in two exchange-traded funds (ETFs) that I monitor on a daily basis.

The first is the iShares MSCI Emerging Markets (EEM). This fund enjoyed a very nice move higher from February through August. But in September, we’ve seen EEM give back much of its gains. The fund now trades below its 50-day moving average, the first indication of more trouble ahead for stocks in the emerging markets.

EEM_092414

Another area where you would expect to be doing well if the global economy also were going strong is commodities. Conversely, if the global economy is beginning to slow significantly, you also would expect to see a significant decline in commodity prices.

If we look at the price action in the DB Commodities Tracking Index Fund (DBC), we find that there has, in fact, been a significant decline in the segment since June.

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DBC_092414

Since the June 20 high in DBC, this broad measure of the commodity sector has collapsed some 12.8%. That’s a very big decline even for the usually volatile commodities space. Moreover, the downturn in July actually sent DBC well below its 50-day and 200-day moving averages, a bearish development for traders.

When it comes to commodities, global climate change definitely is here, and that should be seen as a red flag warning sign for investors with A) direct commodities exposure and B) investors with too much exposure to emerging markets — and to equities in general.

Last week, I made several adjustments to the holdings in my Successful ETF Investing newsletter portfolios specifically designed to combat this global financial climate change. Those adjustments included tightening up stop-losses on some holdings and selling other holdings to lock in gains.

To find out how you can adjust your portfolio’s holdings to protect your money against global financial market climate change, check out my Successful ETF Investing newsletter today.

The Problem with Age

“One problem with age is that patience begins to ebb.”

–Carl Hiaasen

The writer and humorist Carl Hiaasen often puts a smile on readers’ faces, and he does so here with his thoughts on age and patience. Yet when it comes to investing, don’t let your age and your ebbing patience get the best of you. That means you don’t want to take on excessive risk in an effort to catch up on your gains. That’s almost always a recipe for disaster.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

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In case you missed it, I encourage you to read my e-letter column from last week about the four ETFs key to understanding the state of the global economy. I also invite you to comment in the space provided below.

previous article

It was a down week for U.S. markets, with the Dow Jones slipping 0.44%, the S&P 500 falling 0.81% and the NASDAQ dropping 0.97%. But global stock markets really suffered the most during the past week, with the MCSI Emerging Markets Index tumbling 3.58%. Big gainers in your Alpha Investor Letter portfolio included Skyworks Solutions Inc. (SWKS), up 1.93%, and the WisdomTree Japan Hedged Equity (DXJ), which gained 1.28%. Three positions, Berk

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