For this week's edition of the SIA Equity Leaders Weekly, we are going to re-examine the number two ranked asset class within the SIA Asset Class Rankings: International Equity. We had mentioned in the ELW a couple of months ago, that ever since International Equity moved up in ranking just below US Equity, both of the asset class' components, the international developed and the international emerging, have both seen continued strength.
As a reminder, SIA's analysis allows subscribers to analyze a step further to see specifically where the main strength is coming from. We will first view a relative strength comparison chart comparing the EEM vs. EFA to determine the relative strength winner, and then we will look at a highly ranked International ETF.
iShares MSCI Emerging Markets ETF (EEM) vs. iShares MSCI EAFE ETF (EFA)
The iShares MSCI EAFE ETF (EFA) tracks a broad range of companies (900+) in Europe, Australia, Asia, and the Far East. The exposure to large and mid-capitalization equities from 21 developed markets outside North America give investors an easy way to diversify internationally. Since last looking at the March 7th, 2017 chart, the strength continued through strong resistance at $65 and currently sits just below all time highs.
The iShares MSCI Emerging Markets ETF (EEM) follows 800+ large and mid-capitalization stocks from 21 emerging market country indexes. This ETF gives investors exposure to countries such as China, Korea, Taiwan, India, Brazil, South Africa, and Russia. Since last examining the chart on March 7th, the shares have also continued upward but still sits below its 2011 highs.
As you can see in the EEM vs. EFA comparison chart, after over a year with a rather large relative outperformance by the emerging markets, we are in period of consolidation where there is no clear winner over the past few months. The one year performance difference between the two is around 12% favoring EEM, but when we look at the past 1, 3, 6, and 9 months, the difference is negligible. The emerging market ETF remains in a comparative uptrend against the developed market ETF, and time should soon tell if the trend continues for EEM, or whether there may be a shift in relative strength towards the developed markets.
iShares MSCI Brazil ETF (XBZ.TO)
Continuing the story of relative strength within the international markets, specifically emerging markets, we thought we would examine a highly ranked Canadian traded ETF which gives exposure to large and mid-cap companies in Brazil. The iShares MSCI Brazil ETF tracks the performance of the MSCI Brazil 25/50 Index which gives targeted exposure to approximately 85% of the free float adjusted market capitalization in Brazil. The fund gives investors large exposure to Brazil's Financial, Consumer Staples, Energy, and Materials sectors.
As you can see from the chart, the shares have continued its monster rally which began early last year; over the past one year alone, the ETF has risen over 50% and is currently closing in on levels not seen since 2014. Near-term resistance is seen at around $16 and then $17. To the downside, support is seen around $14, and then lower at the $12.50 level. With an SMAX of 9 out of 10, the Brazil ETF continues to show near-term strength against the asset classes.