Chartwell Global ETF Report

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Emerging markets have snapped back sharply since their pullback in August and their run over the past few years has been spectacular. For example, the Shanghai Composite index has increased sixfold during the past six years. One has to ask, are markets way ahead of themselves? Has the rebound been too far too fast with broad-based emerging market ETFs like (EEM) up 30% since just mid August?

One of the five areas that Chartwell ETF evaluates in making ETF portfolio decisions is fund flow data from EPFR Global. EPFR Global provides fund flows and asset allocation data to financial institutions around the world. Tracking both traditional and alternative funds domiciled globally with $10 trillion in total assets, we deliver a complete picture of institutional and individual investor flows and fund manager allocations driving global markets. Our market moving data services include daily, weekly and monthly equity and fixed income fund flows and monthly fund allocations by country, sector and security.

EPFR Global data shows that for the third week in a row Emerging Market Equity Funds including ETFs absorbed over $5 billion as investors continue to bail out of underperforming developed market asset classes and head for either cash, emerging markets or, to a lesser extend, commodities such as gold. Since the fourth week of August investors have parked $23.9 billion in emerging markets funds, $28.1 billion in Money Market Funds and $895 million in Commodity Sector Funds. During that same period they have pulled $6.85 billion out of Europe Equity Funds, $6.26 billion out of US Equity Funds and ETFs, $4.1 billion out of Global Bond Funds and $3.87 billion out of Japan Equity Funds and ETFs. Within the emerging markets fund groups it was again Asia ex-Japan Equity Funds that took in the most cash during the second week of October.

Investors and institutional sources of capital appear to agree with leading equity strategists who think the liquidity injected into global markets by the Feds September rate cut will benefit emerging markets, which have the winning combination of sounder fiscal balances, faster growth and proven outperformance, says EPFR Global Managing Director Brad Durham. “But the strength of the flows and the speed of the rerating of emerging market equities over the past three weeks is somewhat troubling.

Recent performance and flow numbers look like they are outstripping fundamentals, says EPFR Global Analyst Cameron Brandt. “During the last big run, between October 06 and February 07, it took 20 weeks for the funds we track to gain around 23%. That run ended with $9.5 billion flowing out over two weeks and 7% being shaved off year-to-date performance

Find out what is next for emerging markets by joining the Chartwell ETF Advisor

By Carl Delfeld of the Chartwell ETF Advisor

With all the economists and gurus wringing their hands over the possibility of a drop in consumer spending, maybe it is a good time to take a look at the Claymore Robb Report Global Luxury exchange-traded fund (ROB).

Two points may be eluding some analysts. First, roughly 60% of total US spending is by the top 20% income earners. Their purchasing power is unlikely to pull back sharply. Second, the number of wealthy individuals frlom emerging nations is absolutely staggering and they want the best. Just one, example is Mr. Carlos Slim, the wealthiest man in the world whose net worth goes up $52 million a day!

This ETF will hold from twenty to one hundred securities of firms that cater to the wealthy including retailers, manufacturers of automobiles, boats, aircraft, and consumer electronics as well as travel and leisure firms, and investment and other professional services firms. It currently has 42 firms in its basket and 72% of them are domiciled in the U.S., France and Switzerland.

Here are the top ten current holdings in the ETF and their weighting.

DAIMLERCHRYSLER AG NPV(REGD) 5.48 %
GOLDMAN SACHS GROUP INC 5.16 %
LVMH MOET HENNESSY LOUIS VUITTON 5.11 %
COMPAGNIE FINANCIERE RICHEMONT-UTS 5.08 %
PPR SA 5.03 %
BAYERISCHE MOTOREN WERKE AG (BMW) 4.87 %
PERNOD-RICARD SA 4.78 %
CHRISTIAN DIOR SA 4.69 %
UBS AG 4.53 %
CREDIT SUISSE GROUP 4.37 %

Learn whether now is a good time to add some luxury to your global ETF portfolio at the Chartwell ETF Advisor.

By Carl Delfeld of the Chartwell ETF Advisor

The Australian exchange-traded fund (EWA) has rebounded sharply aided by the resilient Aussie dollar reaching new highs and steady performances by companies like BHP up 2.9% so far in today's trading. EWA is up 1.9% in mid-day trading today.

The Australian dollar reached its strongest level against the US dollar in nearly a quarter of a century on Monday, some commentators predicting it could reach parity in the coming months. Part of the demand for the currency is the carry trade whereby investors borrow in low interest currencies like the Japanese yen and invest in higher yielding currencies like the Aussie and New Zealand dollar.

According to the Financial Times, the Aussie jumped yesterday by more than one US cent, passing through the 90 US cent barrier to reach in Sydney at $0.9016, its highest level in 23 years. Yesterdays rise marks an extraordinary run for the Aussie, which dipped to $0.77 in August on subprime fears. It also hit a 10-year high against sterling yesterday.

The Australian ETF (EWA) has also benefited from being at the sweet spot of the commodity and Asian trading theme. BHP, the company with the largest weighting in the ETF basket, recently reported huge new exploration opportunities. Mr. Marius Kloppers will soon occupy the CEO chair so capably executed by Chip Goodyear. The talented management team of BHP should continue to drive growth in a conservative manner without costs getting out of hand.

The Australian ETF (EWA) has been a key holding in several of Chartwell ETF's portfolios.

By Carl Delfeld of the Chartwell ETF Advisor

As Bombay's SENSEX index broke 18,000 for the first time yesterday, many are wondering if the market and the exchange-traded funds that track it such as (INP) can keep the momentum going. Valuations of the leading companies that carry a lot of water for the top heavy index are always a concern. But the key risk over the long haul is politics and its impact on economic reforms.

I agree with the thinking that India's democracy is a crucial advantage over its rival China's authoritarian government but India's fragmented coalition system creates a complex situation almost unfathomable to locals and foreigners alike.

Incredibly, Indias coalition government led by the Congress Party essentially is stuck with Communist "allies" that block or modify just about every important legislation on the table. Some investors may think, forget the politics, look at the robust growth of India's economy but this misses the point that growth it is not sustainable without major reforms in areas like labor, trade and opening up foreign investment for infrastructure development not to mention foreign relations. One example, retailers like Wal Mart are facing stiff opposition to expand into India even though they have strong domestic partners.

On the foreign relations side, the Communist Party has signaled strong opposition to the nuclear deal with the United States and although the situation may be defused for a time, the threat of withdrawing support from the coalition would topple the government. If this were to happen, fresh elections would need to be called ahead of 2009 when the current five-year term of the government ends.

In comparison, America's two party system looks absolutely fabulous.

Find out what the best way to play 10% annual economic growth by joining the Chartwell ETF Advisor.

While India and China economic growth translates into strong performances by exchange-traded funds such as MSCI China iShare (FXI) and the Morgan Stanley India ETF (IIF), it also helps to support global growth.

The Economist highlights this positve trend and likens it to a jet with multiple engines. Emerging markets as a whole will account for more than 50% of world GDP growth in 2007 and fully 30% of total world GDP. In addition, emerging market countries represent 85% of the world's population.

It is indeed good news that the world has found some powerful new engines in China and other emerging economies. Even as turbulent credit markets potentially trim American markets and even perhaps its voracious consumers, global growth is less dependent on the United States and is more likely to stay aloft.

The Economist article goes on to describe the power of this new motor which is powerful and hopefully enduring. For several years, emerging Asian economies have accounted for more of global GDP growth than America has and this trend, with the exception of Japan, is accelerating. In addition, this year China alone will for the first time accomplish the same feat all on its own (at market exchange rates), even if American growth holds up.

American consumer spending is roughly four times the size of China's and India's combined, but what matters for global growth is the extra dollars of spending generated each year. In the first half of 2007 the increase in consumer spending in China and India together contributed more to global GDP growth than the increase in America did. Now if America can only gain access to these growing lucrative markets, trade imbalances may disappear.

First, there is the growth factor. Korea cannot compete with the growth levels of emerging markets such as China and India plus its companies have the lowest dividend payout ratios in the region.

Then there is the "Korean discount" whereby the Korean market always seems to be trading at a discount to its Asian neighbors, a factor usually attributed to its industrial structure and huge conglomerates with extensive and complicated cross-holdings. If you look at relative valuations on a price-earnings basis, Korea's market is according to data from Thomson Datastream and Reuters, actually trading now just a bit over 13 times earnings. This is a higher valuation than Singapore, the UK, Netherlands and Sweden.

All this may help to explain why international investors have shedded Korean stocks for the past three years. But the trend has accelerated recently, with foreigners shedding a net $10.8bn of equities last month alone. They now own only 33 per cent of the Korean stock market, a level last seen in 2000, when the shockwaves of the Asian financial crisis were being felt.

On the other hand , return on equity is on a par with the region and Citigroup points out that Korean companies' average debt/equity ratio has dropped from 300-500 per cent before the crisis to just 22.5 per cent now. There has recently been passed legislation to open up South Korea's financial markets and it is also likely that a more business friendly president will be sworn in next year, bringing more economic reforms.

Then there is the Samsung and China factors.

Together, Samsung Electronics, POSCO, and Kookmin Bank account for 30% of South Korean ETF (EWY)and stock markets market capitalization. Samsung alone accounts for 15% but the company is not a terrific play on the South Korean economy. Rather it is a global play on its three key markets and the expected payoff from its extraordinary commitment to R&D. The South Koreans are discontented because the five largest companies are growing outside the country more than in it and at a stage of development where it should be more competitive manufacturing onshore. The challenge is the low cost manufacturing platform with huge economies of scale just next door. The issue is China. Samsung already has already has 29 plants and 50,000 workers in China.

Since China is already starting to manufacture stuff like machine tools that the South Koreans were busily exporting during the last few years, South Korean planners believe it must quickly transform itself into a finance, communications and transportation hub, akin to the role of Singapore or Switzerland.

The question then becomes does it have the right companies, the right skills and what is its competitive advantage? Join the Chartwell ETF Advisor and see whether South Korea fits into your portfolio.

It should be no surprise to sophisticated global investors that many of the emerging market country exchange-traded funds are dominated by the top weighted companies in the index. But behind Mexico's ETF (EEW) is the incredible story of one man, Mr. Carlos Slim, arguably the wealthiest man in the world.

In an excellent article in the Financial Times by Adam Thomson is a description of his empire which makes up more than a third of Mexico's stock exchange index capitalization. According to Forbes, which last put his fortune at $53.1bn, Mr Slim's net worth last year increased by $19bn, or $52m a day. That is one hell of a cash cow.

At the core of his empire are Telmex and America Movil (AMX), his telecommunications giants. These two companies alone make up 35% of the iShares Mexico ETF (EWW).

Telmex dominates fixed-line telephony in Mexico, accounting for more than 90 per cent of the market. It is also extremely profitable: Adam's points out that every year it generates enough in top line earnings to pay for its original acquisition price. Somehow Mr. Slim was able to persuade the Mexican government to allow him to enter the wireless market, a business he would later spin off into America Movil, which he controls.

The company has increased its subscriber rate by an average of 65 per cent a year since 2000, according to Mr. Slim, and now has more than 125 million clients in over ten countries. The company has obviously been extremely active and successful in penetrating tough but lucrative emerging markets all over the world.

In many ways, companies like Telmex and America Movil are in many ways ETFs already being a basket of companies under one roof.

Find out more about using ETFs to tap into incredible growth stories like Mexico by joining Chartwell ETF today.