Many U.S. Sectors Hold Their Own Against the World (XLE, IYZ)
16 July 2007 at 8:39 am by Gary Gordon
The media push to start allocating to Asia and Europe is in full swing. You read about diversifying away from domestic concerns like the subprime scandal. You see television spots promising greater gains as you profit from the surge in the global economy. Not to forget the semi-ubiquitous claim that the U.S dollar is weak, and that you need the strength of foreign currency.
Now, there’s no denying that, for the most part, investors have seen far greater gains over the last 4-5 years in overseas markets. Moreover, the riskier the country/region, the greater the returns have been. Why… a 30% drop for emerging markets? That’s nothing but an opportunity for year-end gains of 50%+!
I myself feel rather comfortable allocating to overseas markets; I lived abroad for 3+ years in countries like Taiwan (R.O.C.) and territories like Hong Kong.
Yet I am a healthy skeptic. When every article, feature and candlestick maker says the U.S. market is for yesterday’s investor, I wonder if that may be an overstatement. (What’s more, these proclamations are typically made at Dow 12000, just before a surge takes the Industrials to 14000.)
In any event, a quick perusal uncovers several large segments of the U.S. economy proving to be as profitable as global counterparts. For example, the Energy Select Sector SPDR (XLE) has a slightly better 2-year track record than the global alternative, iShares S&P Global Energy (IXC). And with XLE, you have far superior volume. (Note: That’s important for getting a price that you want, whether you are buying or selling.)
Similarly, one might have wondered if/she need to go global to capture the resurgence of telecom companies. Not in the last 2 years, anyway. The iShares Dow Jones US Telecom (IYZ) has done a fine job versus its global competitor, the iShares S&P Global Telecommunications Fund (IXP). And once again, the U.S. exchange-traded fund has significantly better volume of trades through the day.
This is not suggest that I favor a U.S.-only portfolio… far from it! Rather, it is critical for investors to evaluate each ETF and each idea based on the individual merit of that investment choice.
Disclosure Statement: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.
