Global Markets Update

May 24, 2004

A look at market returns through recent ETF performance.

After a string of up months, emerging markets ETFs have been hit hard of late.  The iShares Emerging Markets Index (ticker: EEM) lost about 13 percent the past month, but is still up 43.40 percent over the last year. 

1-year trailing daily returns of iShares Emerging Markets (blue) vs. the S&P 500 (red).
Source: CBS

The broadly diversified MSCI EAFE fund is down 2 percent year-to-date, and up over 32 percent for the past twelve months.  The recent move is related to a strengthening of the U.S. economy relative to Europe and a stronger U.S. dollar.  Correspondingly, much of the strength of European markets over the past year related to a weaker U.S. dollar.  Both currency markets and equity markets now find themselves at a crossroads, with the balance tilted toward an environment of a stronger U.S. economy, rising U.S. interest rates and a stronger dollar.

Broad International & Emerging Markets ETFs

ETF (ticker)
M* Category
1 mo
3 mo
1 yr
iShares MSCI Emerg Mkts Index (EEM)
Diversified Emerging Mkts
BLDRS Emerging Markets 50 ADR Index (ADRE)
Diversified Emerging Mkts
BLDRS Asia 50 ADR Index (ADRA)
Diversified Pacific/Asia
iShares S&P Europe 350 Index (IEV)
Europe Stock
Fresco Dow Jones Euro STOXX 50 (FEZ)
Europe Stock
Fresco Dow Jones STOXX 50 (FEU)
Europe Stock
BLDRS Europe 100 ADR Index (ADRU)
Europe Stock
iShares MSCI EAFE Index Fund (EFA)
Foreign Large Blend
BLDRS Developed Markets 100 ADR Index (ADRD)
Foreign Large Blend

Source: Morningstar, all data as of 5/21/2004

U.S. real estate ETFs have also taken a beating after a rally in early 2004.  There are three ETFs tied to real estate - Barclays Global Investors manages to funds, and State Street offers a real estate streetTRACKS fund.  Rising interest rates in the U.S. threaten to take the air out of a real estate boom of historical proportions.  Whether the economy continues to strengthen and rates fall, or the economic recovery stalls and rates stay at low levels, it is hard to imagine a continuing rise in real estate anywhere near the levels we have seen in the last several years.

U.S. Real Estate ETFs

ETF (ticker)
1 mo
3 mo
1 yr
3 yr
iShares Dow Jones US Real Estate (IYR)
iShares Cohen & Steers Realty Majors (ICF)
streetTRACKS Wilshire REIT Fund (RWR)

Source: Morningstar, all data as of 5/21/2004

2-year trailing daily returns of streetTRACKS Wilshire REIT (blue) vs. S&P 500 (red).
Source: CBS

The broader U.S. stock market has stalled to some degree even as the economy continues to strengthen.  This is par for the course, as stock markets: 1) tend to price 6 months ahead of the actual economy, and 2) stock market participants are averse to the prospect of rising interest rates, which seem to be on the horizon as the employment outlook strengthens and signs of inflation begin to appear.

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