If you believe in the market’s ability to revert back to the mean, then you are likely hunting down exchange traded funds with attractive valuations or those that have been recently oversold. But there is a little more to value investing than just picking the worst performers.
Singling out the worst-performing ETFs is just the first step, writes Mitch Goldberg, financial advisor and president of ClientFirst Strategy, for CNBC. Investors have to look for sources that will back a recovery, such as financial backing from a central bank or the International Monetary Fund. [Investors Return to EM ETFs]
For instance, ETFs that track Turkey, Peru, Chile, Indonesia, Brazil and Colombia are some areas to watch after steep declines in 2013. Over 2013, the iShares MSCI Turkey ETF (NYSEArca: TUR) fell 27.3%, iShares MSCI All Peru Capped ETF (NYSEArca: EPU) dropped 25.4%, iShares MSCI Chile Capped ETF (NYSEArca: ECH) declined 23.9%, iShares MSCI Indonesia ETF (NYSEArca: EIDO) dipped 23.3% and Market Vectors Indonesia Index ETF (NYSEArca: IDX) was down 23.2%.
Along with finding lagging areas of the market, Goldberg suggests following seven steps for implementing a global value equity ETF strategy: 1) Pick a few ETFs that were among the worst performers in the previous year. 2) Take partial positions in worthy investments. 3) Use below-the-market buy-limit orders to add on dips. 4) Keep up with market news that affect your ETFs. 5) Know that the first leg up will be the largest bump in returns. 6) Rebalance to your investment preferences. 7) Repeat with other areas of the market. [Indonesia ETFs Just Getting Started]
Goldberg also points out that ETFs are a good investment tool for the job. ETFs provide broad exposure to areas where investors would not have the expertise to individually pick out stocks. ETFs, unlike mutual funds, also allow investors to use limit orders and other stock executions to better control trades. Lastly, ETFs provide access to many different global markets.
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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.