Build your own macro hedge fund with Single Country ETF’s

By: ispeculatornew
Date posted: 07.21.2010 (4:00 am) | Write a Comment  (6 Comments)

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One of the more popular forms of active investing is macro economy based on the different economic news around the world. The three major investment arenas are commodities, currencies and international stock/bonds. I personally have always been interested in the third one through my traveling.

That being said, such investing used to be reserved to fund managers because of the complexity involved. First there were tax issues as every country has different laws that made it very complex and costly to invest in. But even bigger challenges came from operational issues:

-opening accounts in foreign countries
-currency conversions
-specific rules for foreigners

ETF’s save the day

As many of you know I am a big fan of ETF’s for many reasons but the amazing variety of ETF’s now makes it possible for almost anyone to get involved into International investing. Buying the entire stock market (more or less) of a country is something that can now be done in any brokerage account. Gradually, these ETF’s have gained popularity and while Ishares remains the biggest player thanks in large part to the fact that it was first in the game, others have made inroads in offering products in other countries. Just take a look at the map below to see all of the alternatives out there:

Also, I thought it could be interesting to take a closer look at the relationship between the actual macro-economic performance of these countries and the performance of the various ETF’s. There are other factors of course that could contribute including currency movements. But it is still an interesting exercise to do in my opinion. Also, even on an individual country level, the relationship between GDP and stock market performance is far from direct. All of this is because stock market performance is generally not related to actual economic performance but rather the actual economic performance compared to what was anticipated.

Without further wait, you can see the actual map , as you can see there are a lot of choice when it comes to single country ETF’s :

Best GDP Growth in 2010

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Best GDP Growth over 5 years

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Best Single Country ETF’s  so far in 2010

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Best Single Country ETF’s in the last year

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And finally you can see the entire data set for the countries that have an ETF:

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And for those ETF’s

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What does the future hold?

It is certainly fascinating to see the possibilities with all of these ETF’s. That being said, I expect many more ETF’s to eventually open. First off, many countries will probably soon get their own ETF, here are some of them:

Czech Republic
New Zealand

And also, I would expect bond ETF’s to become a lot more diversified. You can buy Chinese or Brazilian stocks, why can’t we buy Chinese government bonds or Brazilian corporate bonds? I’m convinced that over time these will also appear in the market.

And finally, this has already started but I expect many more specialized ETF’s to appear. For example, you can trade all of these sub-sectors in China. I would expect that would be available in other countries over time.


Not a big surprise but the relationship between GDP and ETF performance seems weak in many cases but the most obvious case is China which has had an amazingly strong economy but the ETF’s that track the Chinese market have performed very poorly which is normal since the Chinese market has indeed suffered a great deal this year. Are you surprised by these results? Have you tried out any of these single country ETF’s?

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  1. Comment by Zavi — July 21, 2010 @ 8:45 am

    Good post!! Yes I am really surprised. The stock market is usually influenced by the state of the economy. Can you give me the 3 countries with the lowest relationship between ETF’s performance and GDP’s growth? And the 3 countries with the highest relationship. Thanks!

  2. Comment by The Financial Blogger — July 21, 2010 @ 1:50 pm

    would you buy according to the GDP or the recent stock market performance?

  3. Comment by IS — July 23, 2010 @ 4:03 am

    @Zavi – Wow, very difficult one !! The correlation seems very low across the board, would have to work on that, maybe at some point later!

    @TFB – according to the P/E and other fundamentals of the stock market, not the GDP.

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