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ETF Laggards That May Have More Pain Ahead (EWT, IDX, IEZ)

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ETF Laggards That May Have More Pain Ahead (EWT, IDX, IEZ)

Every now and then, today's laggards become tomorrow's leaders, but that's a tough scenario to bet on. The reality is that when markets are moving higher, it's a worthwhile endeavor for traders to look for the boats whose sails are not being lifted that much or at all by the broader market's rising tide. Come correction time, those laggards become excellent shorts.

With the benefit of hindsight, we can now identify ETF laggards from the January/February rally. Unfortunately for these funds, their biggest problem isn't that they underperformed earlier this year. No sir, it's that more declines may be forthcoming. Consider these laggards for potential shorting opportunities going forward.

iShares MSCI Taiwan Index Fund (NYSE: EWT) Yes, the iShares MSCI Taiwan Index Fund did move higher earlier this year, and despite the fact Taiwan really shouldn't be considered an emerging market any more, it is, at least by MSCI, and that leads others to view the country as a developing nation as well.

The signal that EWT, which found its way to a bear market last month, was in for more declines was that even though it was moving higher earlier this, it never even came close to threatening its 2011 peak. In the past month, EWT has lost 8.6% compared to 7.4% for the Vanguard MSCI Emerging Markets ETF.

Market Vectors Indonesia ETF (NYSE: IDX) IDX's action to start 2012 gave away the fact that rough times were ahead for this ETF. Indonesia is the largest Southeast Asian economy and IDX is no shrinking violet of an ETF with $400 million in AUM.

Size didn't matter for IDX earlier this year as ETFs tracking the Philippines, Thailand and Vietnam all outperformed their Indonesian rival. Indonesia is a market investors can and should like over the long-term, but given IDX's weakness relative to its comparable peers and the slack performance of the emerging markets universe recently, patience will be a virtue with Indonesia ETFs.

iShares MSCI Netherlands Investable Market Index Fund (NYSE: EWN) Indeed, the vulnerability of EWN has been noted recently, but it was clear earlier this year as well.

On the basis of geography, we compared EWN January 1-March 1 performance against the comparable Belgium and Germany ETFs (the Netherlands borders both countries) and on the basis of both having AAA credit ratings, we compared EWN against the iShares MSCI Austria Investable Market Index Fund (NYSE: EWO). To start the year, the iShares MSCI Germany Index Fund (NYSE: EWG) offered better than double the returns of EWN while EWO was superior by about 900 basis points.

Now, as IEZ) Oil services stocks and ETFs are the quintessential good news/bad news plays. They're great when oil is moving higher because they're more sensitive to oil futures than are integrated oil stocks. Of course, that's the case on the downside as well. In the past month, IEZ is off 9.5% compared to losses of barely over 6% for the Energy Select Sector SPDR (NYSE: XLE) and the iShares S&P Global Energy Index Fund (NYSE: IXC).

Making IEZ and its rival funds all the more vulnerable is Halliburton's (NYSE: HAL) margin warning, issued earlier this week. That type of warning may not be limited to Halliburton and if it spreads, IEZ will be punished.

For more on ETFs that should be shorted or avoided, please click HERE.

Posted-In: Long Ideas News Sector ETFs Short Ideas Emerging Market ETFs Events Global Intraday Update Best of Benzinga

 

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