There have been a lot of significant events happening around the globe, putting specific countries in the spotlight. With global, regional and country specific exchange traded funds (ETFs) available, what does an investor do with all the news?
According to Jeremy Glaser and Paul Justice for Moningstar, investors should keep a watchful eye on specific triggers that could affect these countries. When there are large-scale events in a country, the domestic market tends to experience heightened volatility as greater uncertainty is introduced. This results in bigger price dislocations, wider bid/ask spreads and potential new levels of price discovery.
Investors who jump in during times of turmoil will be speculating on what the actual price of underlying assets are worth. [Market and ETF Reactions to Japan’s Quake.]
For those who already own the ETFs of volatile areas, sticking it out or selling out depends on risk tolerance. In less developed areas of the world, markets and economies are not as established, which may result in pricing premiums compared to underlying assets – as was the case for the Market Vectors Egypt Index ETF (NYSEArca: EGPT). But, in the case of the Japanese-related ETFs, the Japanese market won’t shut down like Egypt’s and should continue to operate. [Egypt ETF Trades At Premium Over NAV.]
Know about the area you are investing in – what are the risks for that region or country in the world. Don’t just look at the economic risks, look at the political and population risk. These days, the risk of one attribute to a country can affect another.
Also, if you are waiting for your chance to jump into an ETF, it is important to have a strategy in place. We prefer to keep it simple with trend following: when a position is above the 200-day moving average, it’s a buy signal; when it’s below, it’s a sell. You can read more about implementing a trend following strategy: ETF Trend Following Plan.
For more information on global ETFs, visit our global ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.