Although the U.S. equity indices are the undisputed kings within global finance, — leveraging over $17 trillion in total market capitalization — investors may be seeking higher profitability potential offered through international markets.
The biggest challenge in the domestic sector is momentum: the prolific returns from past years have simply decelerated. For example, the S&P 500, which gained slightly over 14% in 2014, is on pace to return approximately 5% in the current year …
Some international markets like the Shanghai Composite Index can return that in a day! Clearly, a portfolio reallocation is in order.
Of course, the real question is: which international markets to engage? Contrarian gambles, such as the one taken for Greece Global X (GREK), have failed to produce sustained profits.
On the other hand, momentum trades — like the aforementioned Shanghai index — have led to concerns of a potential bubble. Everyone wants a good deal, but no one hopes to be the last one holding the bag.
Fortunately, as CNBC veteran Jim Cramer is apt to say, there’s a bull market somewhere. Here are three iShares exchange-traded funds that offer higher-yield solutions to lagging U.S. markets.
3 ETFs to Buy: iShares MSCI Singapore ETF (EWS)
For patently obvious reasons, discussions about Asia’s surging economic influence in global affairs typically center around the “Big Three” — China, Japan and South Korea.
However, Americans may be surprised to learn that among international markets, iShares MSCI Singapore ETF (EWS) closely matches the U.S. in terms of per-capita wealth and social and demographic diversity.
Smaller in size than Manhattan, Singapore features a citizenry with a 90% homeownership rate and an educational and corporate environment where meritocracy is valued over intangible attributes such as networks or social status. Some of the initiatives to better ensure national productivity and social integration are radical — and perhaps a tad controversial — amongst international markets, but they seem to be getting the job done.
From a technical perspective, EWS is forming a bullish pennant formation, a phenomenon in the markets whose hallmark signature is the convergence of upper and lower trading ranges into a singular focal point. At this apex, EWS should surge in a breakout move, representing a continuation of the dominant bullish trend.
Statistics gathered from the time when EWS first became publicly available for investment suggest that the odds favor the bulls. Of quarterly average returns that closely match EWS’ current three-month performance figure of 0.29%, there is a 63% chance that by the first week of September, EWS shares will be up an average of 6.5%.
While the ride in EWS has been admittedly choppy, the fundamental and technical picture is amongst the most supportive within international markets. Look for Singapore to return consistent gains in the months and years to come.
3 ETFs to Buy: iShares MSCI South Africa ETF (EZA)
Africa as an investment opportunity is one of the sexiest topics on Wall Street. As one of the last regions within international markets to embrace orderly capitalism, the growth potential is exponentially large.
Case in point: during the peak of the global recession in 2009, Africa and Asia were the only two economic sectors to net positive returns. Additionally, during the 2000s decade, Angola grew faster than anywhere else on the planet.
The primary challenge, though, is that there are very few practical ways for American investors to capitalize on the African opportunity: enter iShares MSCI South Africa ETF (EZA).
South Africa represents the best of both worlds, leveraging the vast natural resources of the African continent while also flaunting modern infrastructures, particularly in global transportation networks.
Unlike many other international markets in the region — which are often labeled as “frontier markets” due to their political and social instability — South Africa is a reputable name. EZA as an investment also features relatively high volume, providing another safeguard for would-be investors.
Similar to Singapore’s EWS, the EZA ETF is a beneficiary of a bullish pennant formation. In fact, EZA has successfully broken out of a pennant that formed between the middle of 2010 and the beginning of 2014. Presently, shares have encountered choppy trading, pushing EZA down for the year by a little over 1%.
Statistically, EZA’s fortune may soon change. Despite netting a soft average performance of -1.56% in the markets, similar trends in the past have yielded a 60% probability that EZA will move higher over the next three months. This highlights the resiliency of EZA shares to absorb near-term volatility in exchange for longer-term gains.
For investors that want to take smart, calculated risks, EZA offers a healthy balance between stability and profitability.
3 ETFs to Buy: iShares MSCI Japan ETF (EWJ)
There’s no arguing with performance and that is the claim to fame for iShares MSCI Japan ETF (EWJ). Although the initial shock-and-awe catalyst of “Abenomics” — whose trademark feature is undeniably the massive influx of artificial liquidity — has long since faded, the Japanese markets are still the gifts that keep on giving.
Year-to-date, the benchmark Nikkei 225 is up nearly 18%, placing Japan as one of the top international markets that consistently return strong results.
Individual stock picks that comprise part of the EWJ ETF have performed well in the markets despite the two-and-a-half years since the introduction of Abenomics. The Japanese financial sector in particular has shown great strides in building off of prior momentum, and the coming Tokyo Olympic games in 2020 underscores the fact that Japan’s resurgence is not just about cheap money.
Technically, EWJ is slightly different from the aforementioned international markets, with shares developing a bullish flag pattern. However, the implication is exactly the same, which is a continuation of optimistic sentiment.
From a statistical angle, EWJ also represents a strong case. Over the past 90 days, EWJ netted an average of 1.86% in the markets, which forecasts a 68% probability that shares will continue to swing higher through August and into September. So long as international markets don’t get riled up by unexpected dark horses, Japan appears to be a safe bet for both near-term and long-term gains.
While EWJ isn’t exactly a hidden gem, positive fundamental and technical factors make it likely that it will continue to be an outperformer.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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