2 Middle East ETFs to Avoid
The oil-rich Middle East markets should be powering ahead with oil near $110 per barrel, but they saw quite a sell-off a month ago, and I am afraid that the recent recovery in the Market Vectors Gulf States Index ETF (NYSE: MES) and the WisdomTree Middle East Dividend Fund (NASDAQ: GULF) are opportunities to sell, despite my outlook for a continued surge in oil prices.
Saudi Arabia is far from stable with unrest on its borders, and the movement for democratic changes still threatens a spillover. The Saudi market was under significant pressure when protests originally erupted, and the situation in the region is not under control.
Leveraged Emerging Market ETFs Burn Buy-and-Hold Investors
Leveraged ETFs sounded like a great deal when they first came out. However, investors were very surprised to find out that if the underlying index had quite a few sell-offs and rallies, but essentially stayed in a trading range for a long period ending up unchanged, both the bullish and the bearish ETFs declined!
This is due to the mathematics of reverse compounding that add up over time, so the higher the leverage, the bigger the decline in both bullish and bearish ETFs.
This makes the Direxion Emerging Markets 3X Bear Shares (NYSE: EDZ) and the Direxion Emerging Markets 3X Bull Shares (NYSE: EDC) great for short-term trading, but terrible to hold over time in a range-bound market. The same goes for leveraged ETFs from ProShares, even though they carry 2X leverage.
If you want to buy and hold, go with the unleveraged ETFs, if you want to trade on a short-term basis, use the leveraged ones.