Some great points raised in this discussion.
On RRBs, I didn't mention them simply for lack of space and time. We have not used RRB ETFs to date and currently, as I mentioned in the article, they are quite expensive given the low rates and inflation. However, they may become the best investment if inflation really takes off. For now though, mid-tenure, corporate bond ETFs offer the best value in terms of both yield and risk.
On equity returns and economic growth: there is hardly any correlation between the two. Emerging stocks have underperformed in recent years despite decent growth. China, over a 20, 30 year period has underperformed the SP 500. I would not argue in favor of a simple EM investment. However, I do expect companies that earn revenues from EM consumers will benefit and offer higher return potential. These can be companies in either the developed or developing markets. As the EM countries shift away from resource-intensive development, these consumer-oriented firms will benefit.
One ETF I've written about recently is IPS/NYSE, a consumer staples ex US. Basically EAFE Cons Staples with global revenue exposure.
There are also other EM ETFs focussed on these companies.
Thanks for confirming my understanding of the disparity between economic growth and market returns Vikash. Some investors forget the point you make above about the S and P and China. As a DIYer I prefer to hold mostly NA equities as it is harder to keep track of emerging markets. Another disadvantage is that the accounting practices and can be difficult to follow and understand. Some of these companies may be listed on Canadian exchanges (Sino Forest is an obvious example). The SNC scandal, if I can call it that, is another one that was in the headlines but business practices are different in these underdeveloped emerging markets. It is probably much similar to NA when it was in its development phase with the exception of the media coverage and instantaneous exposure of the internet. I do not hold SNC but do see it as a potential value play in the future. I try to gain exposure to emerging markets through NA div paying equities with international exposure. Obvious choices are US mega corps(consumer goods) such as MacDonald's and Coca Cola but they can be found in other sectors Such as materials, commodities and manufacturing. I think that it will be awhile before these emerging markets ween themselves off of their addiction to resources and commodities and at that point the focus will shift from the BRICs to lesser developed Asian and S American countries and Africa. It is also interesting to follow the relationship to demographics and development of these nations.
I apologize for temporarily hijacking the thread and taking it away from its original point. I myself do not hold any etfs outside of NA but it does seem like a decent way to hold a basket of investments (I know that i am stating the obvious and the merits of ETFs are numerous - diversification, less monitoring etc.) I would agree with others that we are in a period of low investment in equities and low returns as well. It will eventually hit a point where the media will embrace the death of equities wholeheartedly. I don't know when this is so I keep putting my money in the market in the many pockets of value(so far this year I am beating the index but that may not always be the case) that abound as I have a long time horizon. I would prefer a flat market to a secular bear but we don't get to choose our market only how we react to it.
Last edited by londoncalling; 2012-08-13 at 05:22 PM.
Don't think equities will die. The exchanges will keep trying to find worthwhile IPOs until one catches people's fancy and open up retail investor's money again. Which will bubble and lead to the next collapse.