ETF Investors Weigh Heading For The Exits

Jesse Emspak – Investors Business Daily

With many of the year’s most popular ETFs starting to look shaky, it’s a good time to look at exit strategies.

IShares FTSE/Xinhua (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ), Claymore BNY/BRIC (EEB) and iShares MSCI Brazil (EWZ) are in the top five performers over the past 12 months.

But that doesn’t mean they will stay that way, says Tom Lydon, president of Global Trends Investments.

One reason is that they are 20% or more off their highs. IShares FTSE/Xinhua, for example, returned 153.4% over the last year, but the share price was 177.40 on Tuesday. The ETF topped out at 218.51 on Oct. 31.

Like iShares, PowerShares Golden Dragon peaked at 38.72 on Oct. 31, and closed Tuesday at 31.86. The ETF returned 132.9%. Claymore reached 57.90 and closed Tuesday at 51.55, with a 113.9% return. IShares MSCI Brazil hit 86.15 on Nov. 8 and dropped to 81.38 on Tuesday, still returning 108%.

Cutting Losses

The Brazil ETF, Lydon says, would be on his firm’s watch list to sell. Investors should get out if an ETF loses between 5% and 8%, he says.

A disciplined sell strategy is essential, he says, because too often investors are impressed by trailing returns.

But eye-popping returns can blind investors to the fact that when an ETF is on a losing streak, it is sometimes harder to make up ground.