ETFs vs Large Cap Foreign Stocks

by | May 17, 2007 | Asset Management

Lots of people are buzzing because the Dow is at 13,000. Let me tell you, the return over the past six years from the Dow Jones is less than what you could have earned in a money market account. Don’t get too excited.

As I showed you last week, small cap stocks have crushed the large-cap stocks over the same period. But there are even other places that are doing better in the short term.

The Malaysia stock market is up 50% in the last 12 months.
The Swedish market is up 33% in the last 12 months.
The Netherlands is up 32% in the last 12 months.
The Singapore market is up over 40% in the last 12 months.
The markets in China and Mexico are up over 30% the last year.

In the past, these markets used to be really hard to buy into. You either had to be a superior stock picker, or suck it up and pay a huge sales charge for some mutual fund.

And those mutual funds will usually charge 2% (or more) per year, every year — after paying the sales charge.

That’s way too expensive.

You can buy every single one of these indexes mentioned above in the form of an exchange traded fund. There’s no sales charge to buy ETFs, you just pay a regular stock commission. I have not seen an ETF with an annual expenses exceeding 75 basis points — some are significantly less than that!

Hey…that’s a huge difference when compared to mutual funds.

Plus, with ETFs you see exactly what the basket is comprised of. With a mutual fund you “might” get an update every six or 12 months, and that information is often out of date.

The other problem is that a lot of brokerage firms, financial planners and other folks that dabble in asset allocation will instruct you to invest (normally), about 5% in commodities and foreign markets.

Why bother?

So, for most people, if you’ve got a really small percentage of your money in a foreign fund that goes up 40% . . . what’s the difference? You don’t have enough money in it to really matter.

Look, the point and figure tools we employ to manage the risk tell us *exactly* when it’s time to get in . . . and *exactly* when it’s time to get out. And these funds, even AFTER some tremendous gains, continue to generate buy signals.


Thomas Mullooly
Mullooly Asset Management LLC
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