ETF Expert

It's very frustrating when the media at large agree with you. Or is it, "I'm agreeing with them."

Whatever the case may be, it's hard to argue with the well-reasoned logic. The market pulls back after an incredible risk rally? Check. Investors will once again concur that worldwide stimulus is succeeding in reviving the global economy? Very likely. And the money will pour back into energy/materials as well as the emerging giants of China or Brazil.

While I haven't been the only one laying out the argument for weeks, I'm one of the biggest advocates for using ETFs to gain access. Here are several of those exchange-traded fund investing posts:

1. May 6, 2009: Riskier Foreign Assets for the Next Market Correction
2. May 4, 2009: The Countries With the Most "Stuff" to Sell… Win!
3. April 30, 2009: Getting "Technical" With Energy ETFs

So why am I frustrated by Dan Burrows Smart Money Online column today (5/15/09)? If the piece, "5 ETFs to Buy on the Pullback," includes ideas that I discuss regularly, isn't that a confirmation of sorts?

In truth, I get anxious when others agree with me (or when I agree with them). The crowd often misses the trend. What's more, I make every conceivable effort to avoid "group-think."

At the same time, the "reflating-the-global-industrial-cycle" theme has merit. I simply have to accept that I agree with the premise. I also recognize that, unlike many of my peers, if the "pullback" corrects far more than initially projected, I won't be riding investments down to the March lows. I do use stop-losses… and I will curtail exposure if necessary.

What's more, the aforementioned column only addresses some of the ways to garner ETF exposure. For instance, there's discussion of buying the iShares China 25 Index (FXI), the iShares Brazil Fund (EWZ), the iShares Global Materials Fund (MXI) and the SPDR Select Energy Fund (XLE). They're all exceptionally worthy investments.

That said, I believe it's important to show drawbacks of simplistic buy lists, as well as offer several alternatives. The above funds, for example, are large-cap oriented in scope. (Not that there's anything wrong with that!) Yet Small-Cap China (HAO) has been distinguishing itself from its older brother FXI. And the China Real Estate Fund (TAO) could help one diversify on the mainland.

There's also a new Small-Cap Brazil Fund (BRF) that one might wish to pursue, rather than use the elder sibling, iShares MSCI Brazil (EWZ). This actually depends upon how much exposure to the materials sector you already have.

For example, if you're going to buy iShares Global Materials (MXI), you'd be duplicating your efforts if you picked up shares of EWZ. MXI and EWZ show nearly identical price movement! (See below!)That's why a Small-Cap Brazil (BRF) "slash" Global Materials (MXI) combination would be more sensible.

So while I feel a bit squeamish that there's a fair amount of agreement on what to buy… and when to buy it… I draw some comfort from the different ways that I manage a portfolio. Specifically, I will sell to minimize risk if conditions deteriorate. Equally important, I understand how to check under the hood of all ETFs to ensure genuine diversification across holdings.

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.

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 Adviser 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.