Dion Money Management Blog   Money Management for Retirees and Their Families

Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog, anticipating which ETFs will be in play next.

In the following three blogs from the past week Don advised investors to avoid certain homebuilder ETFs, said biotech remains a bright spot in the uncertain health care sector and noted the strength of well-performing developed-market funds.
Avoid Homebuilder ETFs for Now
Posted 02/24/2010 9:41 a.m. EST

Despite improved numbers from Toll Brothers(TOL), investors should continue to avoid homebuilder ETFs such as SPDR S&P Homebuilders ETF(XHB) and iShares Dow Jones U.S. Home Construction Index Fund(ITB).

Although Toll trimmed losses during its first fiscal quarter, revenue still fell, despite the company’s “luxury” status. Other top holdings in the homebuilder ETF group, such as Lennar(LEN), D.R. Horton(DHI) and Pulte Homes(PHM), face the same fundamental challenges as Toll.

Since ITB is a more top-heavy fund than XHB — TOL makes up 7.47% of ITB’s portfolio and 3.79% of XHB’s portfolio — it will be the more volatile of the two today, whether investors feel encouraged or sell on the news.

The chart at the end of this article shows how ITB’s top-heavy lineup has separated this fund as some investors bet on a recovery among headlining homebuilders.

Last week, I reminded investors to consider the fundamentals when it comes to homebuilders. No matter what the charts or earnings reports say, times are undeniably tough. Consumers are just beginning to dig back in by treating themselves to a Panera(PNRA) sandwich. With unemployment so high, it will be a long time before people rush out to buy homes again.

For now, investors should shy away from the homebuilders. If you’re looking to bet on a slow consumer recovery, check out a well-balanced retail fund.

An Obama-Proof Health ETF
Posted 02/24/2010 10:32 a.m. EST

As President Obama prepares for his health care summit tomorrow, a cloud of uncertainty continues to envelop the various subsectors of the industry.

On Monday I suggested that the release of Obama’s new health care proposal could derail the iShares Dow Jones U.S. Healthcare Provider ETF (IHF) in the short term, and that investors should buy on the dips.

It still seems highly likely that health care reform will be met with continued resistance, and once Republicans get a chance to add their two cents at the health care summit tomorrow, it’s likely that IHF could continue its rally.

Another long-term health care play that should be immune to continued health care debate is biotechnology. Developing that one-in-a-million drug is like hitting the lottery, and these highly specialized drug developers are less prone to the generic pressure felt by other pharmaceuticals.

The biotech industry is tailor-made for the ETF model. Since it is highly likely that a number of biotech firms will either boom or bust, the ETF model allows you to gain access to a portfolio of companies and minimize security-specific risk. This would be an extremely difficult subsector to go stock-picking in.

While several ETFs allow you to access biotech — including the SPDR Biotech ETF (XBI) and iShares Nasdaq Biotechnology Index ETF (IBB) — I would suggest a smaller fund for investors looking for a strong play on this health care slice.

The First Trust NYSE Arca Biotech Index ETF (FBT) has continued to lead peers like XBI and IBB in 2010. Its strong, well-balanced portfolio of biotech companies has helped FBT outperform top-heavy IBB and the more heavily traded XBI.

Top holdings in FBT’s portfolio include Sequenom (SQNM), Cephalon (CEPH), OSI Pharmaceuticals (OSIP) and Gilead Sciences (GILD).

Some traders may find FBT’s moderate liquidity problematic on large orders, but with an average daily trading volume of 50,000, FBT has adequate liquidity for the average trader.

The health care industry will continue to fluctuate as reform is drafted, met with opposition and drafted once again. The innovative area of biotech, however, continues to look like a solid long-term buy in an uncertain sector.

Don’t Forget Developed Market ETFs
Posted 02/23/2010 11:03 a.m. EST

While individual country ETFs can help investors gain targeted access to emerging markets, investors need to keep in mind well-performing developed-market funds.

In a post yesterday, I emphasized the strength of single-country funds such as the iShares Thailand ETF(THD) and the iShares Taiwan Index(EWT) as an indicator of shifting trends in emerging-market performance.

While strong emerging-market picks can help to bolster a well-rounded portfolio, investors should also remember to include strong developed-market picks to capture a mix of economies.

Last week I noted that the iShares MSCI Japan Index Fund(EWJ) continued to advance despite the controversy surrounding top holding Toyota(TM).

Like Tiger Woods’ press conference, pre-released testimony from Toyota’s James Lentz will likely do little to comfort drivers who have bet on Toyota’s brand. Sticky accelerators are a dangerous threat, and Toyota’s response was admittedly slow.

Nevertheless, EWJ’s resilience in light of Toyota’s challenges should perk up the ears of U.S. investors. EWJ is in the black year to date, up 1.44%, even though TM makes up 5.21% of the fund’s holdings. Other top holdings include Mitsubishi, UFJ Financial, Honda Motor(HMC), Canon(CAJ) and Sony(SNE).

Stateside, the solid dividend stocks in the iShares Dow Jones Select Dividend Index(DVY) have helped investors net a 5.37% return during the three-month period ending Feb. 22. During the same three-month period, the PowerShares International Dividend Achievers ETF(PID) rose less than 1%.

The message for ETF investors is simple: Get past the noise.

Gold, Greece and garbage bonds are all distracting in a volatile marketplace. Now is not the time to forget the fundamentals.

When building a well-diversified U.S. and international portfolio, don’t forget to include the developed markets.

International ETFs dominated the list of winners and losers this week, as major political events unfolded in Thailand, Turkey and Europe. Meanwhile, Japan continued its outperformance in 2010.

Winners

Claymore/AlphaShares China Real Estate(TAO) +3%

The Chinese housing industry was, once again, a source of strength this week, leading TAO to some impressive gains. However, investors shouldn’t get too bullish on this fund as fundamental and technical indicators are calling for trouble in the near future.

This week, TAO’s 50-day moving average crossed below its 200-day moving average, forming what chartists call the “Death Cross.” This negative signal indicates that a bear market could be on the horizon. From a fundamental perspective, industry specialists are becoming more wary of the rising prices. On Feb. 23, the South China Morning Post reported that the head of the state-owned conglomerate China Everbright Holdings sees the ballooning home prices in some areas of mainland China as “frightening.”

iShares MSCI Thailand Investable Market Index Fund(THD) +3.9%

THD had a strong week as markets in Thailand saw strong buying from foreigners looking to take advantage of the country’s low price-to-earnings multiple. However, there is uncertainty as to how markets will react to potential political instability after judges confiscated $1.4 billion from former Prime Minister Thaksin Shinawatra, who still commands a great deal of support within Thailand despite his self-imposed exile abroad.

CurrencyShares Japanese Yen(FXY) +3.1%

iShares MSCI Japan (EWJ) +1.8%

iShares MSCI Japan Small Cap(SCJ) +2.1%

The yen rallied against the dollar in the past week, and it was enough to lift the Japan ETFs in a week when the Nikkei 225 remained flat.
Losers
iShares MSCI Spain(EWP) -2.4% iShares MSCI Italy(EWI) -3.2%

An I and the S in “PIIGS” received a respite from a slide earlier in the week after the euro rebounded on Thursday and Friday. Attention remains focused on southern European debt problems, however, and the outlook for the region remains negative. On Friday, Standard & Poor’s warned that it may downgrade Spain’s credit rating if the economy worsens.

Market Vectors Solar(KWT) -7.7% Claymore/MAC Global Solar(TAN) -6.9%

Solar energy ETFs did anything but shine this week. Investors fled these instruments as European governments continued to shift their focus away from subsidies in favor of combating sovereign debt. Adding insult to injury, TAN and KWT were further punished this week when shares of Trina Solar(TSL) nosedived after the company forecast narrower margins in its earnings report.

iShares MSCI Turkey Investable Market Index Fund(TUR) -8.8%

The Turkish ETF was one of the strongest funds last year as nations developed, emerging and frontier alike powered down the path of recovery. However, now that things have slowed a bit, political and economic weaknesses in the nation are beginning to show, threatening the performance of the fund.

TUR took the podium as the worst-performing ETF this week. Over the course of the past few days, more than 40 officers have been arrested and 20 have been charged for their involvement in an alleged plot aimed at staging a military coup. This political unrest sent investors fleeing.

As the nation’s government continues to tackle the attempted military takeover, shares of this fund are expected to remain dangerously volatile.

Disclaimer

The market continues to search for direction this week. After a near month-long slump caused by changing market conditions and the threat of tighter monetary policy abroad, the S&P 500 has rebounded just as quickly, rising from the floor of one moving average (the 150-day) to the ceiling of another (the 50-day). When only 21% of S&P stocks were trading above their 50-day moving average, the market was reaching a short-term oversold level and was ready to rebound. If it holds here, the correction will have been on par with the conditions investors experienced between 2003 and 2007, which is the last time the markets slowly climbed a seemingly endless wall of worry.

Federal Reserve Chairman Ben Bernanke’s semiannual testimony before Congress this week went largely as expected. Bernanke reiterated the Fed’s earlier statements regarding the need to maintain accommodative monetary policy for as long as economic conditions warrant. Although he did not provide actual signposts that would trigger a change in this stance, he did provide some economic signals that we can identify as significant. These include continued growth in private-sector demand; higher business investment in equipment and software; a tighter labor market; and an improving housing market. Among these indicators, there has already been an improvement in private demand, a rise in hiring temporary staff, and higher capital goods orders, all of which bode well for stability and additional economic strength.

Most client portfolios are currently divided equally between value and growth, and the overall allocation is skewed toward large-cap stocks. Historically, value-style investing has outperformed growth. This is particularly true during cyclical recoveries when the economy is expanding and cash flow expectations are steadier. Growth has outperformed during corrections and recessions when growth becomes scarce and investors are willing to pay more for it. Whether this remains true in 2010 is a story that continues to unfold.

Although we have more visibility this year from companies regarding their earnings projections, growth may be less robust than in previous recoveries because of ongoing headwinds, such as available credit, consumer balance sheets, and future monetary policy.

However, some of these issues are why I continue to emphasize large-cap stocks over small-cap fare. Despite their recent spurt of strength, I believe smaller stocks face a tougher environment ahead and have limited access to capital, even during normal conditions. Tighter credit standards and a reduction in bank lending will curtail their growth prospects, which may lead to additional volatility as the economy rights itself, especially for names of lesser quality.

Disclaimer

Investors with greater risk appetites may want to move beyond Mexico and Chile and consider two smaller Latin America country ETFs, Colombia and Peru. In addition to greater risk, these country ETFs themselves are more volatile, and in the case of Peru, a high concentration in a single sector, materials.

The nation of Peru was once home to the Inca Empire, the largest pre-Columbus American empire. In modern times, however, the nation is considered by the International Monetary Fund as a global emerging market. Slightly smaller than the state of Alaska, Peru boasts a population of nearly 30 million and a GDP ranked 45th in the world.

Although located in a tropical region of the globe, geographic phenomena like the Andes mountain range, which runs through Peru, provide the nation with a wide variety of climates. This ranges from a semi-arid, desert-like coast to temperate or even frigid atmosphere in the mountainous range, to rainforestlike conditions toward the East.

The nation’s diverse climate in turn allows for a diverse agricultural palate. Peruvian farmers today produce a wide variety of crops including cocoa, coffee, apples and corn.

Peru’s bread and butter, however, is not agriculture. Instead, the nation relies heavily on its services and industries sectors, which make up nearly 80% of the nation’s GDP.

With large coastlines and the expansive Andes range, Peru has grown to become an international leader in the fishing industry as well as a top producer of materials and precious metals including gold, copper, lead, and zinc.

Investors looking for access to Peru’s markets have traditionally been forced to do so through the use of broad Latin America ETFs and mutual funds such as the iShares S&P Latin America 40 Index Fund(ILF) and the Fidelity Latin America Fund (FLATX). However, in 2009, the iShares launched the first pure play on this nation’s markets in the form of the iShares MSCI All Peru Capped Index Fund(EPU).

Though EPU’s index consists of 26 constituents, like many other single-nation emerging market ETFs, the lion’s share of its portfolio is dominated by its top holdings. In this case, Cia de Minas Buenaventura(BVN), Southern Copper (PCU), and Credicorp(BAP) together account for over 40% of the fund’s total index.

Aside from being able to access Peru’s markets, investors may also find EPU attractive as an alternative way to play basic and precious metals. PCU is one of the world’s largest copper producers while BVN is a large mining firm which specializes in the extraction of silver and gold. The materials sector as a whole makes up 65% of the fund’s portfolio.

Though it remains the only single play on this nation, EPU has struggled to gain a strong following since its launch. While broad Latin American focused ETFs like ILF and single-nation funds like the iShares MSCI Brazil Index Fund(EWZ) and iShares MSCI Mexico Investable Market Index Fund(EWW) change hands millions of times a day, EPU’s average volume remains under 30,000.

Looking ahead, economic growth both domestically and abroad will be essential to the prosperity of Peru and EPU. As seen through the recent recovery slowdown, a decrease in demand for basic materials and dropping precious metal prices can weigh on a fund so heavily exposed to these industries. In the most recent one-month period through February 25, the fund has sunk 5%, the steepest drop among all single country Latin American funds.

Be sure to check my other articles examining Latin American single nation ETFs: Mexico, Chile and Colombia.

Investors with greater risk appetites may want to move beyond Mexico and Chile and consider two smaller Latin America country ETFs: Colombia and Peru. In addition to greater risk, these country ETFs themselves are more volatile, with high concentrations in single sectors or companies.

Colombia

Colombia, a country with a 20 million-person workforce, saw accelerating growth from 2002 to 2007, but stalled in its expansion when the credit crisis struck in 2008. Now some analysts are saying that equity exposure to the country should be increased.

An improvement in domestic security has helped the economy over the past few years as U.S. equipment has assisted the military in gaining a strong upper hand in the decades-old civil war against the Revolutionary Armed Forces of Colombia, commonly known as FARC.

Also, the United Nations, in its annual drug trafficking report released this month, says that the manufacture of cocaine from Colombia, still the region’s biggest producer, has decreased significantly, further signaling that the economy may benefit from a decrease in drug-related violence.

The economic recovery of two of its main trading partners, China and the United States, has helped improve the outlook for Colombia. Like many countries in Latin America, the country has significant commodity resources; high asset prices from global growth are beneficial to the economy.

The country is not without unsettling developments, however. A referendum in the near future may allow the country’s president to run for a third term, and the prospect of such a vote has added volatility to Colombian markets. Also, the country continues to have poor relations with its neighbor Venezuela, which opposes U.S. involvement in Colombia, and exports to the nation have dropped significantly.

Short-term volatility must be an accepted state of affairs for investors in much of the developing world, and if ETF investors want to gain access to Colombia to tap into its economic outlook, their only option is the volatile Global X/InterBolsa FTSE Colombia 20 ETF (GXG).

Readers should be aware that the fund may present liquidity concerns for larger investors, because it has a low three-month average daily volume of only 6,200 shares. This means that the ETF should not be used for quick or large trades and is best suited as a small allocation in a mid- to long-term focused portfolio.

corporation, Ecopetrol S.A. (EC), which is also the largest company in Colombia. The company accounts for 20.1% of the ETF, while the second-largest holding, a bank called BanColomobia S.A. (CIB), receives an 18.6% allocation. The next-largest holding (by comparison), Banco de Bogota, only accounts for 5.3% of GXG.

In total, the top 10 holdings account for 78.6% of the ETF and banks are the largest sector allocation at 29.3%. Oil and gas, financial services, utilities, industrials, consumer goods, consumer services and telecommunications are the other sectors represented by GXG, and they receive allocations of 19.1%, 16.9%, 10.2%, 9.6%, 5.9%, 5.4%, and 2%, respectively.

In the past year, GXG outperformed all other Latin American country-specific large-cap ETFs. Its year-to-date performance has also been better than the large-cap funds for Peru, Chile, Brazil, or Mexico. Since the start of 2010, GXG has increased by 10.2% and in the trailing one-year period, it increased by 136.6%.

There certainly are risks to an investment in Colombia via GXG, such as domestic security concerns there and the low volume of the fund itself, but as the recent performance figures show, if investors bet right, the pay-off has the potential to be lucrative.

Disclaimer

Throughout his illustrious career, Warren Buffett  has made some incredible investments that helped him amass a fortune that today makes him the second richest man in America.

However, despite acquiring such an impressive mountain of wealth valued in the billions, the financier lives a famously frugal life.

Rather than spending the money he has earned on a fleet of sports cars, big houses or other luxuries, the Oracle of Omaha has opted for many of life’s simpler pleasures. This includes a conservative home in Nebraska and a glass of Cherry Coke. However, while Buffett’s cost of living is low, his wealth is not going to waste.

On the contrary, aside from being known as one of the world’s greatest investors and wealthiest individuals, he is known as one of the world’s most generous philanthropists. Through donations, auctions and other means, the financier has assisted numerous organizations in need.

Buffett runs his own organization, the Susan Thompson Buffett Foundation, which assists college-bound students in Nebraska. The foundation, formerly known as The Buffett Foundation, was changed in homage to her after she passed away in 2004.

Though the Nebraska-based organization bears the investor’s surname, the bulk of Buffett’s charitable donations will not go to this program. Rather, in 2006, Buffett made headlines when he offered a staggering gift in the form of 85% of his entire Berkshire Hathaway(BRK.A) holdings to the Bill and Melinda Gates Foundation. At the time of the announcement this gift was valued at $37 billion.

The Bill and Melinda Gates Foundation, which was established by the Microsoft(MSFT) founder and his wife, works to battle global disease and poverty as well as fund U.S. education projects.

However, not all of Buffett’s philanthropic gifts are monetary. Buffett has also used his impressive following to help charitable organizations through various auctions.

Earlier this month, Buffett sat down to lunch with a small group of executives from Salida Capital, a Toronto-based hedge fund. The group had won a chance to wine and dine with the legendary investor when they bid $1.68 million in an auction last year.

The money raised from this lunch was donated to the Glide Foundation, which provides aid to San Francisco’s homeless and poor.
Buffett has also offered his helping hand in other ways. At the close of 2009 it was announced that the financier would co-chair a committee led by Goldman Sachs(GS), aimed at assisting U.S. small business owners build their companies.

The 10,000 Small Businesses program is designed to provide small businesses in the United States with access to funds, education and networking opportunities in hopes of increasing productivity and getting them back on their feet. Goldman CEO Lloyd Blankfein, Buffett and Dr. Michael Porter of Harvard Business School are on the Advisory council which is responsible for the development, execution and evaluation of the program.

Despite the long time he has resided in the upper tier of society, Buffett has not forgotten about the less fortunate.

Prior to the meal he shared with Salida executives, Buffett told Bloomberg that the need for charitable giving is unlimited. Whether on Wall Street or Main Street, this is one Buffett lesson we can all take to heart.

Disclaimer

Mexico and Chile are the two Latin American economies that have moved beyond the emerging-market stage of development, and they are two of the larger single-country ETFs from the Latin America region. Investors looking for ways to play the region while avoiding Brazil, which dominates broad regional funds, should first look to these two country ETFs.

In part 1 of this series, I examined the ETF that tracks Mexico’s economy. Now I’ll look at an ETF that gives investors exposure to Chile.

Chile, a country of nearly 17 million people, is probably best known as a major copper exporter and for having perhaps the best run economy in Latin America.

The country’s military overthrew an increasingly Marxist government in the 1970s and was ruled by Augusto Pinochet until democracy was restored in 1990.

The period of military rule was not without its problems, but economic progress was a focus of reforms.

When democracy was restored, the government continued to build upon those reforms, ultimately leading to Chile’s recent addition to the Organisation for Economic Co-operation and Development, a group of nations that have advanced beyond the developing stage.

Chile’s economy is reliant on copper, which accounts for about one-third of the government’s revenue. Exports are roughly 40% of GDP, and the country has free trade agreements with the U.S., the European Union, China, India and South Korea, among others.

Despite the dependence on trade and resource exports, Chile has not seen the type of volatility associated with resource-dependent economies thanks to prudent fiscal management that banks the copper revenues during boom periods and spends them during the bust periods.

Investors can gain access this country’s equity market via the iShares MSCI Chile Investable Market Index Fund(ECH). It has an expense ratio of 0.65%, total assets of about $375 million and ample liquidity, with more than 150,000 shares traded per day in the latest three-month period.

Despite the Chilean economy’s reliance on copper exports, the fund has little direct exposure to the metal. Although it has 21% of assets in the materials sector, almost all of that exposure comes from three top-10 holdings engaged in fertilizers, wood and paper, and iron ore.

Mining is an energy-intensive industry, however, and the largest sector exposure comes via utilities, at 29% of this ETF. Much of this exposure is through the second and third largest holdings in the fund: Enersis(ENI), with 11% of assets; and Empresa Nacional de Electricidad(EOC), with 10.2%.

Industrials make up another 20% of assets, with conglomerate Empresas Copec the No. 1 holding in ECH, at 13.6% of assets, and LAN Airlines(LFL) (LFL), a top 10 holding, with 4.4% of assets.

Beyond the top three sectors, the next two each have more than 9% of assets: financials and consumer staples. Half of the financial exposure comes from Banco Santander(SAN), while more than half of the consumer staples exposure is contained retailer Cencosud.

Overall, iShares MSCI Chile has 32 holdings, sufficient for diversification. The largest holding is less than 15% of assets, which keeps the fund from being over-reliant on a single holding, but the 72% invested in the top 10 holdings is a bit on the high side. Still, assets are diversified across sectors and, given the size and characteristics of Chile’s economy, this is probably more diverse than most investors expect from a Chile ETF.

Chile is a country that has moved beyond the developing-market stage and is on its way to becoming a developed nation. The economy will remain dependent on copper prices, but less so as time goes on. Over the long term, this country and its equities should continue to be a more stable performer in the region.

Performance has also been strong in the recent past. Year to date in 2010, ECH has a positive return and is the second best performing country ETF in this region.

Disclaimer

Mexico and Chile are the two Latin American economies that have moved beyond the emerging market stage of development (both are members of the OECD), and they are two of the larger single-country ETFs from the Latin America region.

Investors looking for ways to play the region while avoiding Brazil, which dominates broad regional funds, should first look to these two country ETFs.
Mexico

Mexico is home to over 111 million people and boasts the twelfth largest economy in the world. Mexico’s markets have faced economic crises, most famously the peso’s violent devaluation in 1994 and most recently the global financial crisis, but the country has rebounded before and will again. Currently, forecasters predict economic growth in the latter half of 2010.

Similar to economies of developed nations, Mexico’s economy is dominated by its services and industrial sectors. Top services include banking, education and telecommunications. Mexico’s main industries are cement and construction, food and beverages, and fossil fuel production.

The United States is the recipient of the lion’s share of the country’s exports. Major goods shipped abroad include manufactured goods, silver, oil, and agriculture. Thanks to the implementation of NAFTA in 1994, trade with the United States and Canada has expanded threefold. Aside from its North American neighbors, Mexico also has trade agreements with a number of South American nations, Europe and countries in Asia.

Mexico is also home to one of the world’s wealthiest individuals, Carlos Slim. Ranked just below Warren Buffett, the businessman’s wealth in 2009 was valued at $35 billion.

Launched in 1996, the iShares MSCI Mexico Investable Market Index Fund(EWW) is currently the only pure play ETF available for investors looking for access to the U.S.’ southern neighbor.

. Telecommunications account for 35% of assests, followed by 23% in consumer staples, 14% in materials, 13% in consumer discretionary and 8% in industrials.

Although the fund is designed to track the broad Mexican market through an index consisting of 45 holdings, its performance is largely dependent on the success of a small number of these constituents. Carlos Slim’s telecommunications firm, America Movil(AMX), accounts for nearly a quarter of the fund’s total portfolio. Other top holdings include Wal-Mart de Mexico(WMMVY) and cement giant Cemex(CX). Together, these top holdings make up 40% of the fund’s index.

EWW’s Performance has remained negative through the first part of 2010, but its growth in the most recent one-year period ending Feb. 23 has been impressive. In that time, the fund has managed to gain more than 100%.

Given the top-heavy nature of EWW, I would advise investors looking to hold this fund to keep exposure small. Also, it is essential that investors continually monitor the performance of the instrument and the holdings dominating its index. If any of these top weighted companies see a volatile move, its effect on EWW’s performance will be significant.

Stay tuned for a look at Chile later today.

Disclaimer

President Obama’s bipartisan White House summit on health care kicks off Thursday, and he hopes that it will reconcile differences among lawmakers and clear the way for a final agreement on health care reform legislation.

Republicans are calling the summit mere political theatre put on by the Democrats, but there is the real possibility that Obama will outline a plan for a budget process that would make it easier to bypass opposition and drive through legislation.

In advance of the summit, the president proposed measures on Monday that he would like to have included in the final draft of the reform bill. Some of these details are different from health care reform bills passed by the House and the Senate and have implications for health care sector ETFs. In essence, Obama’s latest proposal would not be good for health insurance companies.

ETFs with large allocations to health insurers would face headwinds as increased regulation keeps a watchful eye on company rates and restrictions. Furthermore, the Obama administration on Tuesday voiced its support for repealing the antitrust exemption that health insurance companies have enjoyed for more than 60 years.

Among the liquid, health care sector ETFs, the one with the largest allocation to U.S. health insurance companies is iShares Dow Jones U.S. Healthcare Providers Index Fund(IHF). Five of the fund’s top 10 holdings are health insurance companies that account for 33.3% of the portfolio.

The Obama proposal also has some negative implications for drug makers in the form of fees and better oversight of prescription drug use to make sure that Americans are not “over-prescribed.” This could also hurt biotechnology companies that develop prescription drugs.

The ETF with the most exposure to U.S. pharmaceutical and biotechnology companies (aside from ETFs in these subsectors) is iShares Dow Jones U.S. Healthcare Sector Index(IYH). In total, the fund allocates 62.0% to pharmaceutical and biotechnology companies and could see downward pressure if legislation shows signs of moving forward based on Obama’s ideas.

In contrast, medical device companies should see continued gains if Obama’s proposal can make headway in the legislative process. These companies would receive large tax reductions if Obama has his way, and iShares Dow Jones U.S. Medical Devices(IHI) is the health care ETF that would capitalize best on these developments. Year to date, IHI is up by about 3% while the S&P500 is in the red and IYH and IHF are essentially flat.

In the first two days of this week, in anticipation of the summit and in light of Obama’s proposal on Monday, shares of IHF and IYH have underperformed IHI and are down by 1.0% and 1.1%, respectively. During the same time, IHI saw a marginal 0.1% increase while the S&P 500 decreased by 1.3%. As of this morning’s open, all three ETFs are gaining, with the largest loser from Monday and Tuesday leading the way. IYH is up by 0.5% while IHF and IHI have increased by 0.3% and 0.2%, respectively.

By Thursday’s summit, the market will have a better idea as to whether Obama’s proposal for an end to the healthcare reform gridlock is going to be able to gain any headway. The three funds discussed here will be the most likely to see moves correlated with the news from the summit.

For those investors that are interested in the health care industry because of its defensive reputation and have faith that Obama will finally be able to push through his plans, the best bet is IHI because it will benefit the most from his revisions.

Disclaimer

Today’s economic climate is not ideal for investors looking for international exposure.

With debt crises threatening the stability of the euro region and monetary tightening weakening China’s markets, the developed and emerging global landscape is filled with challenges that can upend even the most conservative, well-diversified portfolio.

Despite all these dangers, there are still a few bright spots across the globe that may still provide investors with an adequate source of stability. One of the more notable regions is Latin America.

The nations that lay south of the U.S. border — Mexico, Brazil, Peru, and Chile — have performed well throughout the global economic crisis and, thanks to a number of factors, including manageable public debt and strong financial systems, the trend towards stability appears to have legs.

Going forward, as long as Latin American nations continue to see growth, they may prove to be the best region for investors looking to weather the storms facing the rest of the world’s markets.

Effectively playing the nations of South and Central America requires individuals to closely examine the investment options currently available to the average retail investor. While there are a number of investment vehicles actively trading with provide investors with exposure to the markets of Brazil, Mexico, Peru and other Latin American nations on an individual basis, in this discussion I will look at two funds that provide exposure to the region as a whole.

Currently, the two strongest, broad-based plays on Latin America are the iShares S&P Latin America 40 Index Fund(ILF), an ETF, and the Fidelity Latin America Fund(FLATX), a mutual fund. While the two employ different investing strategies, ILF and FLATX share similarities. Given the parallels, picking the best requires a look under the hood.

Though both funds track a unique collection of South and Central American companies, their top holdings boast a number of identical names including: Petrobras(PBR); Vale(VALE); America Movil(AMX); and Itau Unibanco(ITUB).

Comparing the funds’ top holdings, ILF appears to be the more top heavy of the two funds. Of the ETF’s 40 holdings, its top 10 positions represent 68% of the portfolio. FLATX tracks twice as many companies and its top 10 represent slightly more than 53% of the mutual fund.

Geographically, Brazil dominates both funds. Throughout the global economic downturn and subsequent recovery, this BRIC nation has risen to become the poster child of emerging market strength. With well over 60% of FLATX and ILF dedicated to this country, both funds’ returns will depend on the Brazil’s continued prosperity. The rest of the two funds’ exposure is in the markets of Mexico, Chile, and Peru.

Given their similar holdings and geographic exposure, it is not surprising that the two funds have seen near-identical returns across most timeframes. Since the start of 2010 through Feb. 22, both ILF and FLATX have lost 5%.

With all their inherent similarities, it is difficult to choose one fund over the other based on their investing strategies. Picking the best instrument is better accomplished by looking at costs to the individuals holding the fund.

Using this metric as a guide, the clear winner is ILF. This fund, with its passive index, charges investors a 0.50% expense ratio. FLATX, on the other hand, charges investors more than twice as much for its actively managed approach to investing in South and Central America.

In the near future, countries around the globe will continue to face challenges as they struggle to remain on the path towards full recovery. During this period, effectively playing the international markets will require investors to avoid the vulnerable areas and look for the regions with stronger fundamentals. At this time, the source of some of the most promising strength appears to be Latin America. Investors looking for a broad and cost effective play on these nations should turn to ILF.

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