Keeping the Brexit Move in Perspective

Doug Fabian

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

By now, I suspect that the whole world is aware that the citizens of the United Kingdom voted to reject the rule of the elites at the European Union (EU) by opting for a “Brexit.”

The surprising outcome of the U.K. referendum represents a strong stance in favor of populism, nationalism and self-determination. But for financial markets around the world, it also means upheaval.

That’s certainly what we’ve seen so far in the aftermath of the historic vote, as stocks sold off extremely hard in response to the perceived dislocation that’s likely to take place with Britain choosing to sever its membership in the EU.

While the declines in U.S. stocks and developed and emerging markets alike were certainly pronounced, I caution you to keep the Brexit reaction in perspective.

Doing so can be made easier by the following charts of the SPDR S&P 500 ETF (SPY), the iShares MSCI Emerging Markets ETF (EEM) and the iShares MSCI EAFE ETF (EFA).

spyder

SPY Fabian

EfA Fabian

While the clear plunge today in each respective market can be seen by the huge red dive on the charts, I think it’s important to keep in mind that both in the United States and in emerging markets, the respective sectors remain in an uptrend. Moreover, both SPY and EEM still trade above their respective 200-day moving averages.

It’s a different story with stocks in Europe, Australia and the Far East, as they now have collectively plunged below both the short-term, 50-day and long-term, 200-day moving averages.

Another thing to keep in perspective is that there was a nice rally this week leading up to the Brexit vote, and that rally largely helped mute the big selling coming out of the event.

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As of this writing, the S&P 500 is only down about 1.5% on the week. So, when you widen the lens a bit, you realize that despite the approximate 3% sell-off in the broad market averages, things just aren’t going to hell in a hand basket.

Will we see more volatility going forward in stocks in the next several days? I think we can confidently say, “Yes.”

And, I suspect next week will be key when it comes to the next big material move for stocks, bonds, the dollar and commodities.

If the market can rebound a bit, and essentially put the Brexit into perspective, then we could be setting up for another leg higher.

If, however, today’s Brexit sell-off morphs into a protracted risk-off trade for markets, then it could mean a whole lot of tough summer slogging going forward for stocks, more upside for bond prices (and lower bond yields) and more shine in safe-haven sectors such as gold and silver.

ETF Talk: This Fund Buys the Best and Brightest in Silver

 There are many ways to invest in precious metals through exchange-traded funds (ETFs). Gaining exposure to silver mining is as easy as buying shares in the Global X Silver Miners ETF (SIL).

Investing in silver is seen as quite similar to investing in gold. However, there is some thought that gold has had more of a run up in the past and that its price is historically high, while silver might be a better value proposition.

Of course, it is difficult to assess the true “intrinsic value” of each metal compared to the other. But by investing in SIL, you effectively invest in a broad swath of silver mining companies. Indeed, companies held by this fund are weighted according to market capitalization.

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SIL has outperformed some conservative gold mining funds over the last year. As a silver fund of the “biggest-and-best” breed, that is a good result.

SIL is up 45% over the last 12 months, higher than gold mega-fund GDX’s return of 39%. While the prices of the two metals do tend to move together, sometimes one will perform a bit better than the other. The expense ratio for this fund is 0.65%, and it does not pay dividends. Its market cap is currently $316 million. The following chart shows SIL’s very strong recent performance.

sil

View the current price, volume, performance and top 10 holdings of SIL at ETFU.com.

Top holdings for this fund include Fresnillo plc, 11.75%; Silver Wheaton Corp. (SLW), 11.66%; Pan American Silver Corp. (PAAS), 11.16%; Tahoe Resources Inc. (TAHO), 10.55%; and First Majestic Silver Corp. (AG), 5.71%. The top 10 holdings comprise 76.09% of this fund’s assets, so it is not as diversified as some other ETFs.

If you are interested in investing in silver, you will want to consider a wide selection of funds before making an investment. I suggest putting Global X Silver Miners ETF (SIL) on your list of possibilities.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

Making Sense of Change

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 “The only way to make sense out of change is to plunge into it, move with it and join the dance.”

–Alan Watts

The philosopher’s take on change is refreshing, as it encourages us to embrace the inevitable alterations in the universe. This is something to keep in mind today, especially in the wake of the vote for change by the citizens of Great Britain.

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 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.

In case you missed it, I encourage you to read my column from last week about the warning signs of volatility in the central banks. I also invite you to comment about my column in the space provided below.

Finally, I invite you to join me at The MoneyShow San Francisco, Aug. 23-25, Marriott Marquis. Register free by calling 1-800-970-4355 or sign up at DougFabian.SanFranciscoMoneyShow.com. Use priority code 041201.

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This week, the Alpha Algorithm generated another indirect bet profiting from the U.S. housing rebound: the paint maker Sherwin-Williams (SHW). Founded in 1866 and headquartered in Cleveland, Ohio, The Sherwin-Williams Company develops, manufactures, distributes and sells paints, coatings and related products to customers primarily in North and South America, the Caribbean, Europe and Asia. As of Dec. 31, 2015, it operated 4,086 company-run specialty paint stores. In M

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