It is hard to determine what moves a broad group of stock so much that an exchange traded fund (ETF) will move sharply, but one factor could be that the major holdings are concentrated. This can lead to volatility.
Emerging market and country-specific funds are particularly prone to that correlated effect. iShares MSCI Brazil Index (EWZ) is an example, as just in the last 24 hours there have been multiple things going on in Brazil:
- Goldman Sachs gave Brazilian bank stocks an “attractive” rating
- Yesterday’s inflation number was lower than expected
- Industrial output numbers for 2007 were released, and it was a better-than-expected 6%
- Soybean and corn production will rise more than previously forecasted in an attempt to meet demand.
Will Swarts for SmartMoney reports that while ETFs are great vehicles for short-term traders, that doesn’t necessarily make EWZ efficient for smaller-scale investors. Small investors shouldn’t sweat the day-to-day movement so much.
By watching the 200-day moving average and seeing how an ETF is performing relative to that range, it’s easy to set up stop-loss orders and avoid any sort of sudden collapse, which is a worry for emerging markets investors.