ETF Expert

The worldwide financial crisis began with the highly speculative real estate bubble in the U.S. And ever since prices began to decline, nearly all assets have dropped like eggs off a 10th story building.

The gravitational pull hasn't let up. Existing home sales sunk at the steepest annual rate on record in the fourth quarter of 2008.

It was difficult to find a silver lining. That said, the pace of year-over-year price declines slowed in key cities like San Diego and Los Angeles. Slower declines could be a prelude to the elusive real estate bottom.

Most believe that a bottom… or confidence in its eventuality… will be necessary to restore confidence in traditional market assets like stocks, bonds, currencies and commodities. For now, however, the only prominent hiding places have been gold, the U.S. dollar and the Chinese yuan.

Still, there are a few less-than-prominent winners in 2009 — winners that have escaped the media spotlight. For example, while the highly traded iShares China 25 Index (FXI) may be down 14% on the year, a closed-end fund that invests directly on the Shanghai and Shenzhen exchanges is actually up 27%. The Morgan Stanley China A Share Fund (CAF) may have sneaked by the paparazzi so far, but with numbers like that, it won't be an ancient Chinese secret for much longer. 

Keep in mind, however, active stock picking in closed-end funds may not outperform traditional indexes over the long term. Morgan Stanley China A Share Fund (CAF) has done so since it began less than 3 years ago, but the China Fund (CHN) has not.

While short equity funds have received most of the media attention, short bond funds have not. Some writers, including myself, have profiled the ProShares UltraShort 20+ Treasury Bond(TBT) Fund. Very few have talked about a less risky alternative, the ProShares UltraShort 7-10 Treasury Fund (PST).

During the heart of the credit crisis in a 10-week, Sept-Oct 2008 period, the flight to treasuries was breathtakingly extreme. While banks are still struggling to raise capital, and while individuals find it harder to get loans, however, large companies have seen commercial paper flow once again. And that has caused people to pull out of longer-term treasuries as they look for better yields.

It follows that shorting treasury bonds has been relatively lucrative in 2009. Stocks and most commodities are still struggling to find footing, but stabilization in the high-grade corporate bond market has come at the expense of treasuries. (And to the benefit of short treasury funds.)

The ProShares UltraShort 7-10 Treasury Fund (PST) is up 4% in 2009. Moreover, it remains above its near-term, 50-day moving average.

Finally, what government debt fund is yielding near 7% AND has a bit of appreciation in 2009? The Powershares Emerging Market Sovereign Debt Fund (PCY) is up 2% sans interest payments.

I would hardly call the fund safe based on what happened in the heat of the credit crisis of Sep-Nov 2008. Up until that point, however, it was a steady income producer and portfolio diversifier. If you think the worst of credit fears have passed, a small allocation might be worthy of consideration.

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast or on your iPod at this link.

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.