Market Overview

4 ETF Laggards Poised for Upside (CHIQ, PNQI, XLE)


Finding ETF and ETN winners, particularly when the leveraged funds are excluded, is not impossible, but it is not the easiest of tasks, either. On the other hand, one need not look too far for an array of funds that have recently turned in disappointing performances.

Evaluating laggards is useful on two levels. First, in any large group of laggards, there are bound to be a few ETFs that truly belong there. For either fundamental or technical reasons, or both, these funds are damaged goods and are apt to remain that way for the foreseeable future.

Second, a large group of ETF misfits is also bound to have at least a small numbers that have legitimate chances of shedding the laggard label. These are exactly the type of ETFs that will be highlighted below:

Energy Select Sector SPDR (NYSE: XLE) XLE has lagged the SPDR S&P 500 (NYSE: SPY) by more than 40 basis points in the past three months and that makes the broader market vulnerable to a potential downturn. As was previously noted, when the energy sector spends four months lagging the S&P 500, the broader market index incurred heavy losses just a few months later.

That does not sound like an invitation to buy XLE, but the bull case here is two-fold. First, energy equities, broadly speaking, are inexpensive. Second, XLE's chart is decent. If the ETF can notch several consecutive closes above $68, that might be enough to stoke some fresh buying and send the fund back to the mid-$70s.

Global X China Consumer ETF (NYSE: CHIQ) Compared to the iShares FTSE China 25 Index Fund (NYSE: FXI), the Global X China Consumer ETF has not impressed this year. Compared to the S&P 500, CHIQ has been downright brutal. As was the case with XLE, there are some factors pertaining to CHIQ that do not make this ETF appear to be worthy of a spot on traders' buy lists.

Add to that, CHIQ's chart is not all that impressive and the bear case gains steam. However, all of that can be wiped out in one fell swoop of stimulus and monetary easing by the policy makers in Beijing. It is not unreasonable that China will take steps to foster domestic consumption and that would directly benefit CHIQ. In CHIQ's defense, since its debut in late 2009, it has outperformed FXI.

Market Vectors Indonesia Small-Cap ETF (NYSE: IDXJ) Indonesia's status as an emerging markets laggard was readily apparent almost as soon as 2012 started. In other words, it is easy to explain IDXJ's 11.8 percent loss since its March debut. It is easy to say that this ETF has suffered from an acute case of bad timing.

Here are three reasons why IDXJ could bounce higher later this year: Indonesia is Southeast Asia's largest economy. One of the major ratings agencies (Standard & Poor's, perhaps) could upgrade Indonesia's credit ratings. Finally, if India is expelled from the BRICS acronym, Indonesia will be the new "I."

PowerShares NASDAQ Internet Portfolio (NASDAQ: PNQI) Year-to-date, the PowerShares NASDAQ Internet Portfolio has not been bad, but over the past three months the fund has lost almost nine percent. There is good news and it revolves around PNQI's high-momentum holdings.

If the risk on trade is reborn in earnest and investors start passing on staples and utilities names in favor of riskier fare, that will benefit growth stocks. Priceline (NASDAQ: PCLN), Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), eBay (NASDAQ: EBAY) and Baidu (NASDAQ: BIDU) all fit the bill as growth/momentum plays.

PNQI is not for the faint of heart, nor is it heavily traded, but above $37.50, things could be interesting for this fund.

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