ETF Outlook For The Week Of March 24, 2014 (IBB, CARZ, RSX, GM)
ETF Outlook for the week of March 24, 2014:
iShares NASDAQ Biotechnology Index ETF (NYSE: IBB)
The biotech stocks have been the hottest sector for over a year in the market as they have outperformed when the market rallies and held up better than their peers during sell-offs.
That was until last week. The entire sector took a beating last week with Friday topping things off with a massive volume sell-off. IBB closed below its 50-day moving average for the first time since November and at this point could see more panic selling. The longer-term story remains bullish for the sector, but the question as to where the current sell-off ends remains to be answered.
First Trust Global Auto ETF (NYSE: CARZ)
The issue at General Motors (NYSE: GM) regarding a massive recall and potential fines and lawsuits continues to expand. The stock is down 17 percent from a December high and is not far from hitting a new eight-month low. Japanese competitors have also struggled as the country’s stock market has once again started to underperform.
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But, surprisingly CARZ has held up well and is only down four percent from the 2013 high. The explanation could be that the basket is holding up better than the big names, or that the ETF is about to crumble with GM and the Japanese automakers. The latter seems the most likely and investors should be aware of the short-term risk in the sector and the ETF.
Market Vectors Russia ETF (NYSE: RSX)
An interesting study by Cambria Investment Management looked at the P/E ratios of 44 countries at the end of every year since 1980. Of the over 800 different scenarios, a country’s P/E ratio only fell below 7.0 a total of 28 times. The average gains in the next 12 months of those 28 times is 31 percent and 21 percent annually over the next five years.
The Russian stock market had a P/E ratio of 7.5 at the end of 2013, but has since fallen below 7.0 as the country deals with geopolitical issues. Looking back on last year, Ireland began 2013 with a P/E ratio of 5.0 and theiShares MSCI Ireland Capped ETF (NYSE: EIRL) gained 46 percent. RSX is down 23 percent in 2014 has last nearly half its value since 2011. At this point it could be considered catching a falling knife, but at some point in the near future Russia could be a very lucrative long-term value play.
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