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Real Time Insight

What I thought would be an interesting discussion for Real Time Insight this morning is to open the floor to understanding how institutional investors pick a country index. 

At Zacks, we undertake a CIO survey once a quarter. Our last one was just completed before Thanksgiving.  Ten CIOs with CFAs and at least 15 years of experience chimed in. 

What are their OUTPERFORM countries for 2013?   Mexico, China, Brazil, and India.

That is where things get interesting.  The only country ETF with genuine stock return momentum in 2012 was Mexico.  In fact, Brazil and India ETFs had a lousy year.  It appears our institutional investors are deep value pickers for most of their outperform ETF calls.

Their logic?  

Strongly growing countries like Singapore (+18%) have stock indexes that are too richly priced.  Developing countries worth investing in (Mexico, Brazil, China, and India) are perhaps able to muster strong GDP growth in 2013 and beyond, but have been held back of late on earnings fundamentals.  That would be appropriate for all four institutional country picks. 

India, for example, just appointed Raguram Rajan, the former Chief Economist of the IMF, as its primary advisor.  It has been struggling of late.  Brazil in 2012 has been struggling with the negative consequences of an overvalued currency on exports. China in 2012 has been held back by a deliberate slowdown, driven by restrictive financial policies, to rein in run-away industrial prices.

With those four picks in mind, I open the floor.  What is your mix of characteristics for picking a successful country ETF? 

Possibilities include - GDP Growth, a Strong or Weak Currency, Portfolio Capital Flows, Relative Stock Index Valuation, Sound Budgets, Concentration of a Commodity… 

Tell us how you do it!

Where you would lean in 2013?

iShares for Countries YTD Returns to November 6, 2012 for MSCI Country Benchmarks below:

1. Turkey +49.6%

2.  Mexico +23.6%

3. Hong Kong +22.9%

4. Germany +19.6%

5. Singapore +18.0%

6. Australia +15.1%

7. China +14.1%

8. South Korea +12.2%

9. Malaysia +11.6%

10. France +10.0%

11. Taiwan +9.4%

12. South Africa +9.4%

13. United Kingdom +8.7%

14. Chile +7.6%

15. Canada +7.0%

16. Italy +3.3%

17. Japan -0.3%

18. Brazil -4.8%

19. India -6.3%

20. Spain -7.3% 

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