Market Overview

ETFs: Looking For Strength in All The Right Places (XLY, FCG, VNM)


Plenty of folks look for plenty of things in all the wrong places. For example, love is often sought after in less-than-desirable places, so much so that a song was written about it 32 years ago. Forlorn investors have a tendency to look for winners in all the wrong places, too, especially in a market environment such as the one we're dealing with today.

The good news is some ETFs have been holding up quite well relative to broader market recently. Some members of this group have been leaders for much of this year and by showing their mettle while the broader market slides, these funds are telling investors they've got more upside in store.

Start looking for strength in all the right places with these ETFs.

iShares MSCI Philippines Investable Market Index Fund (NYSE: EPHE) We haven't been shy about our bullish feelings for the Philippines and EPHE. EPHE has rewarded that view, jumping more than 20% since our January proclamation that it would be one of the best non-China Asia ETFs of 2012.

While the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) has lost 3.4% in the past five sessions, EPHE is down just 0.57%. If EPHE can't hold its 20-day moving average, support at $28.50 would be an excellent area to buy this high-flier on the dip.

Utilities Select Sector SPDR (NYSE: XLU) The Utilities Select Sector SPDR has been solid in recent days, rising just over 1% while the S&P 500 has lost nearly 2.8%. XLU's bullishness speaks to a couple of important points. First, investors are reining in their appetite for risk. Second, XLU is a favored ETF destination when risk appetite diminishes. XLU was a stinker earlier this year when risk on was on, but look out because the ETF is back to within spitting distance of is 52-week high. Oh yeah, XLU yields almost 4%.

First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG) Talk about outperformance and showing strength, the U.S. Natural Gas Fund (NYSE: UNG) has surged over 13% in the past five days. Admittedly, the First Trust ISE-Revere Natural Gas Index Fund hasn't come anywhere close to keeping pace with UNG, which tracks futures, but compare FCG to the Energy Select Sector SPDR (NYSE: XLE). FCG is up in the past week while XLE is off 2.4%.

If the natural gas resurgence is legitimate, then there is no better equity-based ETF with which to play that trend than with FCG.

Global X FTSE Andean 40 ETF (NYSE: AND) Around here, we don't sugarcoat anything so we've got to say the Global X FTSE Andean 40 ETF has lost 1.4% in the past week. Then again, that's a lot better than 4.1% the iShares MSCI Brazil Index Fund (NYSE: EWZ) has slid and it should be noted that AND is up nearly 20% year-to-date compared to a small loss for EWZ.

It should also be noted that investors are starting to embrace AND. When we examined the ETF in February, it had just $7.3 million in assets under management. That number is now above $9.6 million as of the close of markets on Wednesday.

Market Vectors Vietnam ETF (NYSE: VNM) Those that have followed VNM over the past few months won't be surprised that this fund makes a list of strong plays in a weak market. In the first quarter, the lone Vietnam-specific ETF was the third-best performer among traditional long ETFs. In April, it was the best. In the past week while international stocks have been taken to the woodshed, VNM has jumped almost 2.4%.

This ETF is finding ways to close higher on days when the S&P 500 and Dow Jones Industrial Average are getting beaten up. Not only that, but VNM's recent five-day spurt has come on strong volume and while the iShares FTSE China 25 Index Fund (NYSE: FXI) has lost 5.3%.

What that tells us is the following: VNM continues to be a strong ETF in a weak market and the fund shows little correlation to the S&P 500 or Chinese equities, both good things these days. VNM is bumping up against some serious technical resistance around $21.30. If that area is surpassed, a new leg up will start.


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