International and emerging markets offerings are the coolest kids at the ETF party right now, favored in a big way over traditional long U.S. equity ETFs. International ETFs saw $5 billion in new inflows in November.

Vanguard Emerging Markets ETF (VWO) led all ETFs with $1.3 billion in new investments. Investors seem to prize Latin America and Pacific Rim ETFs.

There are plenty of other opportunities in the emerging markets ETF universe. In fact, investors can use dozens of country-specific ETFs to gain exposure to compelling emerging markets that don’t always grab headlines. One of those is iShares MSCI Turkey Investable Market Index (TUR). The investment thesis surrounding Turkey is worth considering. Given Turkey’s geographic proximity to both Europe and Asia, opportunities for trade are bountiful.

JPMorgan recently upgraded Turkish equities to “overweight” from “neutral,” saying that Turkey’s exporters will benefit from an economic recovery in Europe and the Middle East. Ratings agency Fitch followed that with an upgrade of its own, raising Turkey’s credit rating to just two notches below investment grade. They cite Turkey’s resilience to the global economic slowdown and the country’s access to credit markets.

These could be positive catalysts for TUR going forward. The ETF is volatile and made a big down move from a closing high of $55.37 in October to $44.60 in late November. December has been better; investors bid the ETF back above its 50-day moving average to a close of $50.93 today. If TUR can hold support at $50, it could continue to make its way higher. Even with the volatility, TUR is up nearly 90% year-to-date.

Investors should note the sector allocations within TUR. Nearly 52% of holdings are in the financial services sector. Industrial materials and telecom combine for another 26%. Even so, some analysts expect the ISE National 100 Index to test its record high of 58,864 in the next six to nine months. From there, the index could move as high as 63,000, which would be a boon for TUR.

It appears the table is set for TUR to join the ranks of more popular emerging markets ETFs. The outlook for Turkish equities may prove too alluring to ignore. TUR could deliver some tidy returns in 2010.

Global X Management Company rolled out

For the purposes of this ETF, the “Energy Sector” includes companies whose business operations are focused on the production and/or distribution of energy, both conventional and renewable, or the production and/or mining of commodities used in energy production. Therefore, companies that are often classified as utilities or materials (coal mining) are included.

CHIE has an expense ratio of 0.65%, and the underlying index uses a multi-tiered capped weighting methodology whereby the percentage weighting of each constituent is capped at 10%. The excess weight is allocated proportionally to all other constituents and then capped again at 4.75%. The excess weight is then allocated proportionally to all non-capped constituents.

This methodology should help provide a true sector representation without the extreme company overweighting present in the popular ETFs like the US Select Sector SPDRs. Only stocks which are tradable for foreign investors are eligible for inclusion. Index members must either be domiciled in China or have their main business operations in that country.

Global X China Energy ETF (CHIE) (CHIE summary) will track the S-BOX China Energy Total Return Index developed by Structured Solutions Ag for this ETF. The index fact sheet shows 24 constituents with four capped at 10% and five subject to the 4.75% cap weighting. The four at 10% are CNOOC, China Shenhua Energy, China Petroleum & Chemical, and PetroChina. The five currently capped at 4.75% are Beijing Enterprises Holdings, China Resources Power Holdings, Huaneng Power International, China Coal Energy, and CNPC.

Top industry representation according to the CHIE fact sheet includes oil & gas 43.9%, alternative energy 18.4%, electric 16.0%, coal 14.8%, and equipment & services 7.0%. The prospectus includes all six Global X China sector ETFs.

Global X Management Company is now halfway through their rollout of six China sector ETFs with today’s (12/09/2009) introduction of Global X China Technology ETF.

The first two (consumer and industrial) were launched last week, and the remaining three (financials, energy, and materials) are expected before the end of the year.

The new ETF has an expense ratio of 0.65%, and the underlying index uses a capped weighting methodology whereby the percentage weighting of each constituent is capped at 4.75%. The excess weight is allocated proportionally to the constituents whose percentage weight is not capped. This methodology should help provide a true sector representation without the extreme company overweighting present in the popular ETFs like the US Select Sector SPDRs. Only stocks which are tradable for foreign investors are eligible for inclusion. Index members must either be domiciled in China or have their main business operations in that country.

Global X China Technology ETF (CHIB)  will track the S-BOX China Technology Total Return Index developed by Structured Solutions Ag for this ETF. The index fact sheet shows 26 constituents with 15 of them subject to the maximum 4.75% cap weighting. Those 15 are: China Mobile, China Telecom, China Unicom, Tencent Holdings, Baidu.com, Alibaba.com, Netease.com, Foxconn International Holdings, Lenovo Group, Ctrip.com, Shanda Interactive Entertainment, Sohu.com, Perfect World, SINA, and Giant Interactive Group. Top industry representation according to the CHIB fact sheet  includes internet 50.0%, telecommunications 30.8%, and hardware & software 19.2%.

Over the next days and weeks, Global X Management Company plans to launch three more China sector ETFs. These are included in the prospectus dated 11/24/09 and will cover the energy, financial, and materials sectors and will also be based on S-BOX indices representing the respective sectors.

The launch of CHIB comes on the heels of the Claymore China Technology ETF (CQQQ) which began trading yesterday (12/08/2009). Here are three reasons why I like CHIB over CQQQ:

1. CHIB is part of a family of China sector ETFs allowing investors to fine-tune their China sector exposure. While Claymore offers other China related ETFs, CQQQ is more of a stand-alone product.
2. I believe the capped weighting approach used in the S-BOX indexes provides for better sector exposure than the more traditional market-cap weighting employed by the AlphaShares indexes.
3. CHIB also has slightly lower expenses of 0.65% versus 0.70% for CQQQ.

Two days ago there were no China technology ETFs, and today there are two of them. It is questionable whether the current ETF marketplace can support two such products.

bull & bear funds

Four New 3x Direxion China and Latin America ETFs

Direxion, known for its 3x leveraged ETFs, launched four new funds today (12/03/09) targeting China and Latin America. The new ETFs seek 300% of the daily performance, or 300% of the inverse of the daily performance, of the BNY China Select ADR Index and S&P Latin America 40 Index.

The new Bull 3x funds will have a 0.94% expense ratio and the Bear 3x funds will have a 0.95% expense ratio. The capitalization-weighted BNY China Select ADR Index currently has 39 constituents. The new Direxion Latin America funds are based on the same index as the unleveraged iShares S&P Latin America 40 Index Fund (ILF).

The four new ETFs are:

* Direxion Daily China Bull 3x Shares (CZM)   (CZM overview)

* Direxion Daily China Bear 3x Shares (CZI)    (CZI overview)

* Direxion Daily Latin America 3x Bull Shares (LBJ)    (LBJ overview)

* Direxion Daily Latin America 3x Bear Shares (LHB)    (LHB overview)

Direxion reminds potential buyers of these new ETFs that they “are intended for use only by sophisticated investors who understand the risks associated with seeking daily leveraged investment results and plan to actively monitor and manage their positions in the funds.” The company provides additional educational material on the characteristics and risks of daily leverage in the education section of its website.

As with all Direxion 3x products, I expect these new ETFs to do a great job of meeting their daily objective. However, do not buy them if you do not understand the implications of daily leverage.

Most markets moved higher in the last week but still lost some upward momentum. The big news, of course, was the request by state-owned Dubai World to renegotiate some of its debt payments.

Coming as it did during a thin holiday market – which may not have been a coincidence – the story sparked a brief sell-off in emerging markets equity and debt. Losses were reversed once traders decided this was not the beginning of yet another credit crisis. Anyone who has seen the glittering new construction in Dubai knows it must be highly leveraged, so we are not convinced the story will end happily. For now, however, the worst-case scenarios seem to have been avoided.

The S&P 500 Index continues to flirt with both sides of the 1100 level. The Dow Jones Industrial Average has held above 10,000 for about four weeks now, but there is no guarantee it won’t dip below again. In fact, there is a high probability it will drop back into four-digit territory at some point. As noted above, momentum is slipping in the major benchmarks. Year-end window dressing is well underway for many portfolio managers. Those fortunate enough to be ahead of their benchmarks are not eager to let that edge slip away. For “absolute return” managers this means raising cash, for “relative return” managers it means making your portfolio look more like the S&P 500. We suspect another big move is coming after some consolidation, but we could see more weakness first.

Economic reports still mostly fall into the “not as bad as it was” category. The Federal Reserve’s beige book, released today, suggests the economy is stabilizing and may be improving slightly by some measures. Of course this is the same Fed that created the housing bubble and then failed to see the recession coming, so we are not sure why anyone pays attention to what they think. Reports from the Black Friday/Cyber Monday retail sales frenzy were generally less than impressive. Consumers snapped up the deeply-discounted promotional items but were not enticed into buying higher-margin goods. More ominously, the proportion of sales paid by credit card fell sharply from prior years. Frugality appears to be foremost on consumer minds this year, and that’s not good news for retailers.

The Dubai scare, brief though it was, caused a pop in the U.S. dollar and a dip in Treasury yields, along with a spike in equity volatility. Interest rates headed back up as the new week opened, with the ten-year Treasury ending today just above its 200-day moving average at 3.323%. Banks and institutions that want to go into year-end with “safe” assets on their books are probably behind some of the Treasury purchases. A similar pattern was seen at the end of 2008 but is not quite as pronounced this year. Spot gold prices crossed above $1,200 this week to yet another all-time high. There is no doubt the gold market is frothy, but as yet there is no sign of a breakdown.

Sectors

Materials kept the top sector spot but lost some of its bullish momentum. Health Care moved up to #2, not because of a strong improvement but because other sectors pulled back. Technology slipped from second place to fifth but still looks quite healthy. Energy slid further down the list while Financials displaced Utilities on the bottom

Styles

Our relative Style rankings were mostly unchanged in the last week. A bias toward Large Cap remains in effect, with Mid Cap in the middle of the curve and Small Cap toward the bottom. Micro Caps, still in last place, slipped back into a negative intermediate-term trend.

International

Japan had a huge week, gaining +5.1%, mostly due to a surging Yen. The Yen exchange rate climbed 2.6% in the last five days and has gained more than 6% against the dollar in the last five weeks. Japan has been lagging badly for most of the year but seems to be resuscitating itself lately. Time will tell if the surge is sustainable. On an intermediate-term basis, Latin America is still the strongest region and Japan is still in last place. The U.K. dropped from #2 to #4. Canada made a strong move back into the top half of the chart and could move higher soon.

Note:

The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

Global X Management Company expanded their ETF offerings today with the launch of

The new ETFs will have an expense ratio of 0.65%. The underlying indexes use a capped weighting methodology whereby the percentage weighting of each constituent is capped at 4.75%. The weightings will be adjusted twice a year. Excess weight is allocated proportionally to the constituents whose percentage weight is not capped.

This methodology should help provide a true sector representation without the extreme company overweighting found in many popular ETFs like the Select Sector SPDRs. Only stocks which are tradable for foreign investors are eligible for inclusion. Index members must either be domiciled in China or have their main business operations in that country.

Global X China Consumer ETF (CHIQ) will track the S-BOX China Consumer Total Return Index developed by Structured Solutions Ag specifically for this ETF. The index fact sheet (pdf) shows 40 constituents with the largest nine capped at 4.75% each. Top holdings include New Oriental Education, Ling Ni Co, Denway Motors, China Yurun Foods Group, Parkson Retail Group, Sinopharm Group, Want Want China Holdings, Dongfeng Motor Group, and Tingyi Holdings. Top industry representation according to the CHIQ fact sheet (pdf) includes retailing 28.6%, food 21.9%, services 20.5%, autos 12.0%, and health care 7.9%.

Global X China Industrial ETF (CHII) will track the S-BOX China Industrial Total Return Index. The CHII index fact sheet (pdf) shows 31 constituents with the largest 10 capped at 4.75% each. Top holdings include Anhui Conch Cement, Shanghai Industrial Holdings, China COSCO Holdings, China Communications Construction, China Shipping Development, Metallurgical Corporation of China, China Railway Group, China Railway Construction, BYD Co, and China National Building Material. Top industry representation according to the CHII fact sheet (pdf) are engineering and construction 26.7%, industrial equipment 25.9%, transportation 21.9%, building materials 20.0%, and industrial services 5.5%.

Global X plans to launch four more China sector ETFs in the next few weeks. These are included in the prospectus dated 11/24/09 and will cover the energy, financial, technology and materials sectors. They will also be based on S-BOX indexes representing the respective sectors.

Van Eck, a leading company for providing ETF investors with access to new investment categories, has done it again.

Today’s launch of Market Vectors Poland ETF (PLND) is the first pure-play single-country ETF focusing on Poland for US investors. PLND trades on the NYSE and expenses are capped at 0.76%

I asked Tomasz Janeczko, a business owner and global investor located in Poland, for his views of this new offering. He replied:

“The new Market Vectors ETF is very interesting and welcome development. Until now, investors preferring index-based trading approach to Poland could only trade futures based on popular Warsaw Stock Exchange indices like WIG20, but it was rather difficult for foreigners.

“PLND makes it a lot easier to get exposure to the economy of the 9th largest country in Europe. The Warsaw Stock Exchange in its current form started its operation in 1991 and currently has 377 companies listed. I am looking forward to see how this ETF will work in practice considering sometimes limited liquidity of certain stocks traded on WSE. I guess the fund will need to use futures traded on WSE that have better liquidity to address such shortcomings and to deliver the expected 95% correlation between fund’s performance and the index.

“Some may consider it a drawback that PLND tracks the proprietary Market Vectors Poland Index rather than the most popular (and known) Warsaw Stock Exchange WIG20 index, even though both indices have very similar constituents.

“Regarding risks, everything spelled out in the prospectus is certainly true, but I would not worry too much about the statement regarding local securities laws and shareholder rights because Poland is a part of European Union and E.U. law has precedence over national law now. This provides a rather strong guarantee that there will not be any ‘unpredictable’ changes in laws, at least not ones that E.U. does not accept.”

As of November 24, 2009 the fund held 25 stocks, with the largest being Pko Bank Polski Sa 9.3%, Bank Pekao Sa 9.07%, KGHM Polska Miedz SA 8.2%, Telekomunikacja Polska Sa 6.2%, and Polski Koncern Naftowy Orlen 5.8%.

The sector breakdown is Financials 40.2%, Energy 13.6%, Industrials 11.0%, Consumer Staples 8.6%, Materials 7.8%, Telecommunications 6.8%, Consumer Discretionary 6.7%, Technology 4.1%, and Health Care 1.2%.

Another interesting new entry to country ETFs is the Market Vectors Viet Nam ETF, which offers exposure to a new emerging market that has previously been unavailable to US investors

Van Eck Global launched the Market Vectors Vietnam ETF (VNM) today. Not only is this the first US-listed Vietnam fund, but it is also the first of the MSCI-designated “frontier markets” to have its own single-country ETF. A remarkable achievement, especially in light of the fact that six emerging markets and six developed markets still do not have their own ETFs.

Jan van Eck, Principal at Van Eck Global, acknowledged in today’s press release that “Vietnam is currently facing the pressures of inflation and current account deficits” while emphasizing “the country’s market reforms should help its longer-term growth potential.” Another strength is Vietnam’s young demographics, with nearly half the 90 million population under the age of 25.

The underlying index, Market Vectors Vietnam Index, is owned by 4asset-management and currently has 28 constituents. To qualify, companies must generate at least 50% of their revenues from Vietnam or hold a dominant position in the Vietnamese market. Today, that means that ~68% of the index is composed of locally listed companies, with the other 32% being comprised of companies from Singapore (7.5%), United Kingdom (6.0%), Malaysia (5.1%), India (4.7%), Canada (4.5%), and others.

Currently, sector exposure is heavily tilted toward financials at 36.7%, followed by energy (19.1%), materials (12.3%), industrials 12.2%, and consumer staples 10.8%. The top holdings include Viet Nam Dairy Products (11.2%), Hoa Phat Group (7.3%), Saigon Thuong Tin Commercial (7.3%), HAGL (7.3%), PetroVietnam Fertilizer & Chemical (5.5%), and PetroVietnam Drilling and Well (4.7%).

Expenses for the new ETF are estimated to be 1.42% but will be capped at 0.99% until May 2010. The ETF is listed on NYSE Arca and options are expected at a later date.