Chasing the Winning ETFs

April 26, 2010 7:47 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Although it is not my usual style, sometimes it makes sense to follow the winners provided that you have an exit strategy in place. What country’s stock market has had the best performance over the last ten years? China? Brazil? Russia? Actually it is Columbia up over 1,500%. Wow!

It might surprise you to learn that Columbia is the third largest in South America. Resource rich, with a population of 46 million and a GDP of 240 billion, Columbia should not be off your radar screen. Its state-controlled oil firm Ecopetrol represents 20% of the Columbia ETF (GXG) basket with financial giant Bancolumbia at 18%. There are 21 stocks in this ETF with an expense ratio of 0.68%.

Looking over the past year, timber ETFs such as CUT have also taken off outpacing the rebound in the S&P 500 index by more than a two to one, up 75% versus 32% for the S&P 500.

Why? Lumber prices are at the highest level since 2007 even factoring in a still-weak housing market. In part, forestry products are seen as a nice hedge on anticipated inflation. Investors may also be looking ahead since a rebound in housing markets is a big positive for timber.

However, keep in mind that if housing weakens in the wake of withdrawing tax credits, markets and CUT will stall or reverse.

Risk Factor: high – suggest 8% trailing stop loss.

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