Market Overview

Commodity Country ETFs Search For Ways to Rebound

Still not a month removed from gold's worst one-day performance in three decades, the crumbling commodities trade is weighing on ETFs beyond mining funds and those that are backed by physical holdings such as the SPDR Gold Shares (NYSE: GLD).

Predictably, some futures-based ETFs and ETNs have suffered in the wake of the wilting precious and industrial metals trade. However, in a situation that makes things all the more frustrating for investors, some marquee country ETFs are getting slammed due to price decay in select commodities. Here are a few of the familiar ETFs that are looking for ways to bounce back.

iShares MSCI Canada Index Fund (NYSE: EWC)
The recent performance of the iShares MSCI Canada Index Fund dents the theory that, due to proximity, Canadian equities always move in lockstep with their U.S. counterparts. In the past 90 days, EWC has lost nearly four percent while the SPDR S&P 500 (NYSE: SPY) has gained almost seven percent.

Many of EWC's struggles can be tied to Canada's status as a major oil, gold and silver producer. Over the past 90 days, the average loss for the U.S. Oil Fund (NYSE: USO), the iShares Silver Trust (NYSE: SLV) and GLD is over 13 percent. Only USO looks somewhat decent by comparison with a loss of 3.8 percent. To be fair, EWC has recently shown signs of life and support seems firm at $26.50.

Going back to August 2012, the ETF has bounced off that level three times, indicating that $26.50 is an important line in the sand for EWC.

iShares MSCI Chile Capped Investable Market Index Fund (NYSE: ECH)
The iShares MSCI Chile Capped Investable Market Index Fund suffers from two problems: Perception and tumbling copper prices. Of course, the latter is brought on by China, the world's largest copper consumer. Chile is the world's largest producer of the red metal and that is not good news for ECH when tepid Chinese data points have sent the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC) down almost 11 percent in the past year.

ECH's perception problem comes by virtue of the fact that the market does not seem to realize this is not a materials heavy ETF. That is just the fourth-largest sector in ECH trailing utilities, financials and consumer staples.

Another element to the Chilean investment thesis that often goes under-appreciated is the country's $15 billion sovereign wealth fund that can serve as a backstop during troublesome economic times.

iShares MSCI South Africa Index Fund (NYSE: EZA)
In more sanguine environments for precious metals, investors have shown a willingness to overlook South Africa's 25 percent unemployment rate. That is because South Africa's status as one of the world's largest gold, platinum and palladium producers is believed to give EZA, an equity-based ETF, some correlation to the futures prices of those metals.

There is a good news/bad news story with EZA. The good news is that the ETF is down just 2.8 percent in the past 90 days and, like ECH, EZA is not as materials as heavy as some investors perceive it to be. The sector represents 13.15 percent of the ETF's weight, making it the fourth-largest sector exposure, according to iShares data.

The bad news is the market can ignore falling precious metals and the impact on EZA or South Africa's political volatility and disturbing rate of joblessness. However, asking investors to ignore all of those factors at once is a tall order.

iShares MSCI All Peru Capped Index Fund (NYSE: EPU)
As was previously noted gold's slide has become a real problem for the lone Peru ETF. EPU, which tracks South America's fastest-growing economy, was flirting with $48 in late January/early February. Today, the $307.6 million ETF languishes below $41.

Gold is not EPU's only problem. Actually, gold is not even EPU's biggest problem. Silver is because Peru is the world's largest silver producer. Peru is also a major copper producer and now it is easy to see why EPU is down nearly 14 percent in the past 90 days. EPU is at a significant disadvantage relative to the other ETFs mentioned here in terms of a potential rebound: This fund is heavy on materials stocks. As in EPU allocates 42.4 percent of its weight to that sector. Simply put, that is not good news when gold and silver miners are among the worst stocks to own right now.

For more on ETFs, click here.

Posted-In: Long Ideas News Short Ideas Specialty ETFs Emerging Market ETFs Futures Commodities Events Best of Benzinga

 

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