Market Overview

12 ETFs to Avoid In 2012


Over the past several weeks, we've been parsing through scores of ETFs to compile lists of the of the various funds worth watching in the year ahead. In fact, we've put together six "Twelve For 2012" lists.

It's always great to know what ETFs hold promise and which ones may deliver tidy returns in the months ahead, but sometimes it's just as advantageous to know which funds have dud potential and need to be avoided.

So with time running out on 2011, we decided to examine 12 ETFs that you'll probably want to pass on in 2012. Some members of this list might be surprises, others not so much.

iShares S&P Europe 350 Index Fund (NYSE: IEV): The iShares S&P Europe 350 Index Fund was down more than 19% year-to-date heading into the start of trading today, so it can be argued that the ETF has endured its fair share of punishment. Indeed it has, but at the same time it can be said that an ETF that tracks Europe with an almost 18% allocation to financials should be down more. Almost 40% of IEV's country weight is a devoted to Euro Zone nations.

iShares MSCI Europe Financials Index Fund (Nasdaq: EUFN): If IEV should be avoided due to an 18% weight to financials, then what are we going to say about an ETF that focuses entirely on European financial services firm? Sure, the iShares MSCI Europe Financials Index Fund is down almost 32% year-to-date, but if support at $14 doesn't hold, this thing could be headed to $10-$11 and the newsflow is currently there to support that move. The yield of nearly 5% is a trap.

iPath DJ-UBS Cocoa TR Sub-Index ETN (NYSE: NIB): Earlier this year, we hit on a great short-term trade in the iPath DJ-UBS Cocoa TR Sub-Index ETN as political tensions in the Ivory Coast escalated. Back then the ETN was moving from the mid-40s to the mid-50s. Now, NIB will struggle to close 2011 over $30-$31. Barring bad weather or bad politics (though both are possible), cocoa prices could continue languishing and that would be bad news for NIB.

Market Vectors Egypt ETF (NYSE: EGPT): We already mentioned this ETF as one to avoid and nothing has happened to change our view. In fact, things have gotten worse for EGPT. This ETF has become such a turkey that on a day when U.S. stocks are soaring, EGPT is down more than 1% and is threatening to fall below $10. EGPT is worse off today than it was during the political violence that rocked Egypt early this year.

Guggenheim Airline ETF (NYSE: FAA): There are days that are anomalies and today is one of them. Somehow, oil prices and the Guggenheim Airline ETF are both up. Don't expect that to become the norm because it hasn't been in the past. Even if oil prices don't go much higher, airlines still face massive labor issues and costs making FAA a tricky bet beyond anything more than short-term holding periods.

iShares Taiwan Index Fund (NYSE: EWT): Taiwan is still an emerging market, but that status could easily change next year and that would remove some of the allure, if there's any left, of owning EWT. EWT has been prized as a China play, but in 2011, the ETF has lagged the iShares FTSE China 25 Index Fund (NYSE: FXI) by an alarming margin. Oh yeah, FXI is up almost 4% today while EWT is down 1.2%.

iPath DJ-UBS Livestock TR Sub-Index ETN (NYSE: COW): We anointed COW as a big disappointment early this year and that proclamation has been validated by negative returns year-to-date. The fundamental case for emerging markets consumers demanding higher quality food may prove efficacious at some point, but COW hasn't been able to capitalize on it yet.

iShares MSCI All Peru Capped Index Fund (NYSE: EPU): We acknowledge that EPU does have plenty of potential and we're probably more bullish on this ETF than any other on the list to this point. That said, political headwinds remain an issue and we would prefer Brazil, Chile, Colombia and Mexico to Peru heading into 2012.

Guggenheim Global Shipping ETF (NYSE: SEA): Ugly chart, ugly fundamentals. Unless daily charter rates rebound and do so in a big way, the seas will be rocky for this ETF. If support is violated at $14, get out and don't be fooled by the dividend yield. It's a trap. Check out the ETF Professor's service for more profitable ETF trades.

Market Vectors India Small-Cap ETF (NYSE: SCIF): We mention the Market Vectors India Small-Cap ETF with a caveat: It could be worth a look at some point next year and we hope it is. For now, it's below $10 and there is no legitimate sign the declines are over. A break of support at $9 takes SCIF to $7-$8.

iShares MSCI Spain Index Fund (NYSE: EWP): Much like the other European fare we mentioned earlier, the iShares MSCI Spain Index Fund has been waxed this year, but a 14.4% year-to-date decline doesn't seem like enough. That's not a sign of resilience. It's a sign shorts could make more money in EWP next year. Another example of don't be enticed by the yield.

iPath DJ-UBS Cotton TR Sub-Index ETN (NYSE: BAL): Another pick with a caveat: BAL could be great for short-term traders in 2012, but this ETN's best days were clearly left in the early part of 2011 and in 2010. Yes, cotton prices remain by historical standards, but BAL is one ETN that can be crushed by even the faintest hint of tough economic news, domestic or otherwise.

Posted-In: Long Ideas News Sector ETFs Broad U.S. Equity ETFs Short Ideas Specialty ETFs Emerging Market ETFs Futures Best of Benzinga


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