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Pricey Markets led to Glum ETF Performances in 2013


There are examples, primarily in the technology and Internet spaces, of stocks sporting lofty valuations for extended periods of time.

For example, some market observers believed Amazon (AMZN) was expensive at $180, $200 and $250 a share. The stock closed near $387 Friday.

However, when it comes to global exchange traded funds, cheap has been the preferred play this year. As was reported Thursday, data from Mebane Faber’s Cambria Investments confirm that investors that bought single-country ETFs for nations with the lowest CAPE, a variation of the traditional P/E ratio, at the end of 2012 have done quite well this year. [Inexpensive Global Markets Delivered This Year]

Several of the low CAPE countries from the end of last year are represented by ETFs that are among the best European offerings this year, including the the Global X FTSE Greece 20 ETF (GREK) , the iShares MSCI Spain ETF (EWP) and the iShares MSCI Italy (EWI). [10 Best Europe Country ETFs in 2013]

Faber’s research highlights just how painful it has been for investors to be long the ETFs tracking high CAPE countries. The U.S., which had a CAPE of 21.1 at the end of 2012, is one positive exception as the SPDR S&P 500 (SPY) is up almost 24% this year.

Canada and Malaysia were also high CAPE countries at the end of 2012 and the iShares MSCI Canada ETF (EWC) and the iShares MSCI Malaysia ETF (EWM) have posted modest gains this year. Other high CAPE country ETFs have not been so lucky.

Interestingly, four of the highest CAPEs at the end of 2012 hailed from Latin America and that translated to some dismal performances in 2013 for the major Chile, Mexico, Colombia and Peru ETFs. On the other hand, the lowest Latin America CAPE at the end of last year, as represented by a country ETF, was Argentina and the Global X FTSE Argentina 20 ETF (ARGT) has been by far the best performer among LatAm single-country ETFs this year. [Worst Global Markets by Country ETFs]

There are at least two other ties that bind the struggling high CAPE country ETFs: Commodities exposure and current account deficits. Of the 10 ETFs tracking high CAPE countries, six represent major commodities-producing nations: Canada, South Africa, Chile, Mexico, Colombia and Peru.

Three of the high CAPE countries – India, Indonesia and South Africa – have been hurt by rising account deficits and weak currencies this year.  To be fair, India ETFs have perked up in recent weeks with the WisdomTree India Earnings ETF (EPI) up 17.2% in the past 90 days.


Chart Courtesy: Mebane Faber, Cambria Investments