Asia ETFs: Diversifying Across the Pacific Rim Tigers

The iShares Xinhua China 25 Index Fund (FXI) finished 35% off its highs last Friday, giving up all of its 50% 2008 gains in a matter of 14 weeks. Remember, a 35% loss requires a 50% gain to get back to your starting gate!

A similar performance dichotomy exists for many of the 2007 standouts, including Singapore (EWS), Hong Kong (EWH) and South Korea (EWY); that is, each of these Asian tigers managed to give back nearly all 2007 gains over the course of Q1 2008.

(Investors who desire to keep more of what they make should consider the "wisdom of avoiding the big loss." Similarly, those who wish to review my reasoning behind a short-term shift away from Singapore in late 2007 might want to see my "2007-for-2008" recommendations.)

Only one of the Asian tigers is sitting relatively pretty over the last 15 1/2 months. Taiwan (EWT) is up roughly 14% in the same period that the other three tigers have struggled to break even.

There's a tremendous irony in this fact; specifically, Taiwan (EWT) picked up 3.5% in 2007, while other "Asian Tigers" were up 20%-30%.

With the tides changing so rapidly, it is Taiwan (EWT) that has the edge on its competitive neighbors today. And since I lived and worked briefly in Taiwan during the mid-80s, I must confess... the irony brings a tiny smile of expatriate pride.

We could discuss the reasons for Taiwan's resurgence. There's the notion of country rotation. There's the belief that the changing political landscape in Taiwan means better relations with China. And there's the feeling that the tech-heavy producer may rebound in a future recovery for tech investing.

Nevertheless, I do not believe that the best way to invest in Taiwan is with with the single country fund; rather, I believe that diversification across the Asian Tigers of Singapore, Hong Kong, South Korea and Taiwan makes the most sense for one's portfolio.

Ergo... the iShares S&P Asia 50 Index (AIA) is my preference. AIA invests in the 50 leading companies from the four tigers: Hong Kong, South Korea, Singapore and Taiwan.

Inauspiciously... and without a great deal of fan-fare, Barclay's introduced the iShares S&P Asia 50 Index (AIA) in mid-November of last year. And for the most part, the trend has been down.

Yet a quick glance at the chart below shows why the diversified approach works best. Taiwan (EWT) is the only country that is outperforming the regional exchange-traded fund, the iShares S&P Asia 50 Index (AIA).

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.