The last 30 days¬†capped a U.S. rally that hasn’t been seen in 70 years. Yet investment managers had a¬†larger hankering for emerging market country ETFs in the final week of September… a sign that “window dressing” is¬†very much alive.
During the last 3-5 days of a given month,¬†investment professionals often adjust portfolio holdings¬†so that¬†asset management clients or¬†mutual fund shareholders get the impression that they own the best¬†“stuff.” This practice of dressing up portfolios becomes¬†particularly prevalent at the end of a quarter because clients and shareholders often receive quarterly portfolio updates.
So how can you tell if¬†“window dressers” went after the hottest ETFs? You check to see¬†which ETFs sported over-sized percentage gains¬†in the final 5 days. Then, see if these assets happen to be the same assets with¬†the highest¬†relative strength rankings and/or¬†the highest 3-month percentage returns.
As it turned out, the ETFs that happened to have the highest relative strength rankings and the largest Q3 percentage gains DID¬†rocket in the last 5 days of September.¬† Surprise, surprise.
For instance,¬†the S&P 500 SPDR Trust (SPY)¬†gained 1.5% in the final 5 trading sessions. Even¬†better, the U.S. benchmark rose 10.8% for the quarter and finished 9/30 with an ETF percentile strength ranking of 40.4 out of 100. That’s quite respectable.
In contrast, however, the iShares Thailand Fund (THD) gained 4.7% over the “final five,”¬†surged 34.6% in Q3 and ended 9/30¬†ranked at the 99.1 percentile. Think there was a bit of¬†“window dressing” at work when¬†THD, a fund¬†in the top 1% of all ETFs, gained 4.7% in a week? I do!
|Window Dressing ETF Results For Trading Week Ending 9/30/10|
|¬†||¬†||¬†||RS Ranking||5-Day %||¬†||Q3 %|
|Global X Columbia 20 (GXG)||99.6||¬†||5.8%||¬†||31.3%|
|iShares MSCI Thailand (THD)||99.1||¬†||4.7%||¬†||34.6%|
|iShares MSCI Peru (EPU)||98.1||¬†||4.2%||¬†||30.1%|
|iShares MSCI Turkey (TUR)||97.7||¬†||5.3%||¬†||31.2%|
|Market Vectors Indonesia (IDX)||97.6||¬†||4.8%||¬†||20.3%|
|S&P 500 SPDR Trust (SPY)||40.4||¬†||1.5%||¬†||10.8%|
I am a big fan of some of the single country, emerging market ETFs. In fact, I’ve written extensively about them throughout the summertime:
1.¬†Near the start of Q3 in early July, I wrote “5 Reasons To Choose The Chile ETF Before Getting Another U.S. ETF.” The iShares MSCI Chile ETF (ECH) garnered 30.4% in the quarter to the S&P 500’s 10.8%.
2. On June 21, 2010, I wrote specifically about the incredible prospects for Thailand (THD) and Malaysia (EWM). Review “China’s Asian Neighbors Have The Most Attractive Stock ETFs.”
With that said, it’s still important to monitor window dressing on Wall Street. Why? With¬†so much money chasing¬†single country emergers,¬†a number of them may achieve “severely overbought” status. And that means… stay true to your stop-loss limit orders to protect your gains.
Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.