Carl Delfeld's ETFpickoftheweek

In picking my ETF for the week I look at 4 things:

First, I look for an investment theme that meshes with where I think markets are going. Oftentimes, this is a contrarian strategy looking for relative valuations that may offer some downside risk protection.

Next, I select the best ETF to play this theme and explain
to members what is inside this ETF basket.

Third, I look for a catalyst that will hopefully provide some
momentum to my ETF pick and put in the news.

Finally, I give members a sense of the risk in each pick and offer a quick tip such as a specific stock or another ETF that might be paired with my ETF pick.

	ETFpickoftheweek for 2009 – 27.6% Average Annual Return

Veiw recent ETF picks >

SAMPLE - ETFpickoftheweek

Brazil Small Cap ETF (BRF)

Rationale and Overview:
It is a little like catching a falling knife in the wake of the sharp pull back in emerging markets, but you might want to take a small position in BRF based on the following facts.

Brazil’s currency, the Real, remains one of the most attractive in the world up 27% in the past year and foreign exchange reserves are at $240 billion. The strength of an economy’s currency is generally a good reflection of the strength and health of the economy.

Brazil is also exhibiting strong growth coupled with relatively low debt. It is just about the only investment grade country where inflation is slowing with an inflation rate of 4%, at the low end of the range of the past decade. Brazil’s exports are diversified and its current account is in very small deficit, at just over 1% of GDP. On the debt side, the country has a 12% gross external debt and 43% government debt as a share to GDP (the US comparables are 95% and 62% respectively).

An argument against Brazil would be that commodity prices are pulling back and that Brazil is seen as basically a commodity play. The reality is that Brazil’s major exports are manufactured goods and that BRF offers investors 40% exposure to consumer product and services companies. This is why I would go with BRF over large cap EWZ which is much more oriented to the materials, mining and financial sectors.

Catalyst:
The catalysts are that emerging markets are perhaps oversold and that Brazil is the most attractive of all the BRICs, with the exception of Russia, on a price to earnings and book value basis.

Tip:
Think about coupling/hedging BRF with the inverse emerging market ETF (EUM) in case the emerging market pullback continues.

Risk Factor:
The risk factor is high and I suggest using BRF only in moderation and using a 6-8% trailing stop loss.

How you can best utilize my ETF picks:

Members can use each week’s ETF pick in a variety of ways. Some may invest a small amount in each pick but many will choose picks that they have a high degree of confidence in because it matches their own opinion regarding which way markets are headed. Some put each ETF pick on their watch list and see the service as primarily an educational process.

Please pay careful attention to the risk factor and advice regarding how to best manage the risk. You may wish to set aside a small amount of your portfolio for this more active strategy and some of the picks may become long-term holdings.

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