With aggressive monetary easing policies supporting growth across Europe and Asia, investors can take a look at materials-based economies that help fuel the expansion, along with related international exchange traded funds,
Europe, Japan and China are seeing improvements after the governments enacted loose monetary policies to stimulate their economies, writes Scott Colyer, chief executive of Advisors Asset Management, for InvestmentNews.
“One thing the world has learned is that asset prices generally love quantitative easing,” Colyer said. “Europe and Japan both have engaged in massive asset purchases, while China has lowered interest rates and bank reserve requirements.”
While these markets are some of the more obvious plays, Colyer argues that investors should consider an asset allocation plan that can help spot “future” bright spots before they shine. For instance, as European and Asian economies expand on monetary stimulus, materials-based economies could gain on greater demand for raw resources. Specifically, Colyer points to signs of a bounce in Latin America and Australia.
“These markets are very inexpensive and we expect them to follow the recovery in Europe and Asia, as demand for commodities begins to recover,” Colyer added.
Investors can also access these foreign markets through ETFs. For instance, the iShares Latin American 40 ETF (NYSEArca: ILF) and SPDR S&P Emerging Latin America ETF (NYSEArca: GML) both provide broad exposure to Latin American economies. [Loving Leveraged Latin America ETFs]
ILF includes Brazil 50.7%, Mexico 31.3%, Chile 11.0%, Peru 4.4% and Colombia 2.3%. GML allocates 50.8% to Brazil, 29.6% Mexico, 10.2% Chile, 5.9% Colombia and 3.5% Peru.
The Latin America ETFs also show relatively cheap valuations compared to other markets. ILF has a 13.0 price-to-earnings ratio and a 1.6 price-to-book while GML shows a 13.9 P/E and a 1.4 P/B. In contrast, the S&P 500 has a 18.6 P/E and a 2.6 P/B.
Additionally, there are a few Australia-focused ETFs available. For example, the iShares MSCI Australia ETF (NYSEArca: EWA) is the largest Australia-related ETF available. The newer SPDR MSCI Australia Quality Mix ETF (NYSEArca: QAUS) emphasizes the quality factor, which captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics. Lastly, the First Trust Australia AlphaDEX Fund (NYSEArca: FAUS) selects Australian companies based on growth factors including 3-, 6- and 12-month price appreciation, sales to price and one year sales growth, along with value factors including book value to price, cash flow to price and return on assets. [Using Commodity Moves to Find Opportunities in Australia]
For more information on the global markets, 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.