3 ETFs That Tanked In May – TUR, EHPE, AUSE
The bull market in US stocks sent the S&P 500 racing to a new all-time high of 1,687 on May 22nd. Amazingly, the large cap index was up 5.6% for the month at its peak!
Even after Fed Chairman Bernanke’s ‘tapering’ comments sparked a selloff, the S&P still finished the month of May up 2%. That’s not too shabby…
Outside of the US, stocks didn’t fare nearly as well. Let’s take a closer look at three foreign market ETFs that tanked in May.
iShares MSCI Turkey Investable Market (TUR)
TUR stumbled to a 3.2% loss last month. And the selloff has accelerated to the downside in the first few trading days of June.
As its name suggests, TUR is indexed to the Turkish equity market. This is an emerging market fund that holds 95 stocks. The top 10 holdings make up 62% of the ETF. And 44% of the stocks in TUR are in the financial services sector.
So what happened to TUR?
The Fed’s comments about tapering off their asset purchases sparked a selloff in emerging markets. Many investors are afraid that if the Fed raises interest rates, it will be disastrous for emerging markets.
And the selloff in TUR has accelerated as social unrest erupted across the country last weekend. And the claims of excessive force to end the protests have sent many foreign investors scurrying for the exits.
This is clearly a volatile situation. And it could send TUR tumbling much lower if it isn’t handled properly.
iShares MSCI Philippines Investable Market (EPHE)
EPHE struggled to a 6.5% loss in May. And just like TUR, the selloff in EPHE accelerated to the downside in the first few days of June as well.
EPHE is indexed to performance of equities listed in the Philippines. This emerging market ETF has 43 stocks. The top 10 stocks make up 60% of the ETF and the top sector is Real Estate that accounts for 22% of the fund.
Who pulled the plug on EPHE?
EPHE was one of a handful of emerging market ETFs that were having a good year. Before the recent slide, EPHE was up more than 25% year-to-date. Now EPHE is down 16% from the recent high of $43.59.
The downside to have a quick 25% run in a market like the Philippines is that when it reverses it can get ugly quickly.
This is one trade that’s crowded with sellers. And even though this selloff looks like it has been overdone – don’t try to catch this falling knife.
WisdomTree Australia Dividend (AUSE)
The trouble in foreign markets wasn’t confined to emerging markets. The 9.5% selloff in Australian based AUSE was worse than EPHE and TUR.
AUSE tracks an index of high-dividend yielding companies in Australia. There are currently 64 holdings in AUSE. The top 10 holding make up 33% of the ETF and financial stocks are the most heavily weighted sector with 24% of the holdings falling into this sector.
What triggered the selloff in AUSE?
The Australian economy has boomed as China’s demand for their raw materials exploded. The amount of metal ore and mineral exports has more than tripled in the last decade.
Their commodity export led economy is ultra sensitive to changes in currency exchange rates. And the US Dollar has been soaring in value against the Australian Dollar. That’s a huge headwind to AUSE and the entire Australian stock market.
We could be nearing a turning point in the exchange rate for AUD/USD. If the AUD can gain ground on the USD, we could see AUSE soar as well.
Good Investing,
Corey Williams
Category: ETFs, Foreign Market ETFs
