Volatility has returned to global markets, making the task of finding attractive trending behavior all the more challenging. But Mr. Market doesn’t usually abandon everything at the same time, which raises a question: Have some areas of global markets cut through the noise and volatilty and posted encouraging upside results lately? That’s a tall order, but there are some intriguing candidates to consider.
I’ll ignore commodities (at least directly), which have soared and, in several cases, retreated sharply today. The potential for upside is still there, along with heart-stopping corrections, largely due to the war in the Ukraine and the resulting blowback for the world economy and geopolitical risk. But that’s a topic for another day.
The question before the house is whether there are non-commodity slices of the markets that are showing encouraging upside behavior despite the events of late? Here are a few tickers that are on my short list to monitor. They’re not totally separated from commodities, but neither are they obvious proxies, at least not at first glance.
The rationale: if you can exhibit an upside bias these days (outside of the pure commodities space), that speaks to the potential for a bullish aura that’s not easily dispatched. As such, one might imagine that when/if something closer to “normality” returns (I’m not holding my breath), some of the ETFs below could rip higher.
But perhaps that’s assuming too much. In any case, the fact that these funds are showing a degree of upside strength at all is no mean feat given the new world order.
iShares Residential Real Estate (REZ): The fund has stalled in the last few weeks, but on a relative basis REZ’s strength is somewhat impressive, given the haircuts that have been applied in so many other market buckets. On first glance, REZ looks like one more fund of real estate investment trusts and, for the most part, it is. The difference is that it more or less targets residential real estate and related business (public storage, for example). So far, that focus adds up to a relative winner of late.
In contrast with several broader-minded REITs-based ETFs, REZ has exhibited a relativley healthy upswing in recent days. Caution is still recommended, however. The prospect of higher interest rates is a headwind, along with slowing economic growth, or worse, triggered by the war in Ukraine.
Meanwhile, let’s see if the fund can punch above its previous high of roughly $94, which would provide fresh fuel for thinking that there’s more than trading in a range unfolding here. To be determined, but for now, REZ is on my watch-list for possible breakout funds.
iShares Latin America 40 (ILF): This ETF has attracted my attention for more than a month and it’s ongoing upside trend so far in 2022 remains encouraging. Before the war started in Ukraine, ILF was showing strength and the surge in energy prices has helped enhance the fund’s outlook, largely because some of its biggest holdings are energy and materials firms. The portfolio is skewed toward old economy companies and so on a longer-term basis this probably isn’t a great buy-and-hold. But for now, those stocks are in favor.
Global X MSMCI Columbia: Speaking of Latin America, this country fund is looking especially strong after gapping up today to close at its highest level in more than two years.
iShares MSCI Indonesia (EIDO): Here’s another ETF with an intriguing upside breakout today. A commodities-related tailwind also appears to part of the narrative. As Reuters reported earlier this week: “Southeast Asian stocks are becoming a haven for international investors fleeing a worsening outlook for global equities who are hoping for sustained strength in the commodity-heavy economies of the region… Indonesia is the world's top exporter of palm oil, thermal coal and a major producer of nickel, copper and refined tin….”
Invesco Solar (TAN): Finally, the recent bounce in this solar fund has caught my eye. Two narratives that may be reanimating the ETF: TAN was pummeled ahead of the Ukraine war, and so it’s a big of a value play, relatively speaking. Meanwhile, there’s a sudden (renewed) recognition that alternative energy sources are increasingly valuable in a world of rising geopolitical risk for conventional energy supplies. It’s premature to read too much into the recent rally, but I can’t help but wonder if this previously hammered ETF could be a new darling in the making. ■