TradeSmith has been bullish on the emerging markets for the last few months. Let’s look at a way to track the emerging markets in greater depth using Watch Portfolios. This will help you take advantage of his investment thesis.
EEM is the iShares Emerging Markets ETF. The ETF is comprised of more than 800 stocks from over 16 countries. It’s obviously too much work to follow all of the stocks, but it’s not too difficult to follow some of the individual countries that make up the ETF. We can set up a Watch portfolio to accomplish this.
Here’s a breakdown of the countries that are part of EEM. This comes from the iShares website.
Each of these countries has their own ETF and that’s what we’ll use for our Watch portfolio.
We’ll add the following individual country ETFs to the portfolio.
- China (FXI)
- South Korea (EWY)
- Taiwan (EWT)
- India (INDA)
- Brazil (EWZ)
- South Africa (EZA)
- Mexico (EWW)
- Russia (RSX)
- Indonesia (EIDO)
- Malaysia (EWM)
- Thailand (THD)
At this time, all of these country ETFs are in the Stock State Indicator (SSI) Green Zone. I’ve sorted these by the Volatility Quotients (VQs). The ETF for Taiwan is the least volatile and the ETF for Brazil is the most volatile.
Many of these first triggered SSI Entry signals more than a year ago and have just recently set multi-year highs.
Investing in the emerging markets can take resolve and patience. We hear all of the problems that these countries have and the media is quick to accentuate the negative. This Watch portfolio can help you see what’s going on within the individual countries that make up the emerging markets ETF. It’s very possible that one or two of these countries will trigger SSI Stop signals and enter the SSI Red Zone before the EEM ETF does.
One of TradeSmith’s mantras is to ignore the noise and follow the signals. These types of Watch portfolios can help you do just that.
Education Director, TradeStops