The Best ETF In the World

ETFs are the do-it-yourself investor’s best friend when it comes to placing bets on industries, sectors and indexes. You can find ETFs that will let buy exposure to major indexes, including leveraged bear and bull funds that will delivery multiples of an index’s change either up or down. And there are ETFs for pretty much every country on earth, with continents and regions sliced and diced to your satisfaction.

But when people ask me my opinion about the best ETF in the world, I have two responses.

First, I try to dodge the question. After all, my job as Chief Analyst of Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor) is to find the strongest individual emerging markets stocks to recommend to subscribers. And my few past attempts to make winning investments in country ETFs have been great object lessons in the difficulty with getting these bets right.


Buying individual stocks gives me much more useful information on fundamentals, markets, chart patterns and such. I feel like I can get more leverage on an individual stock than I can on a country or region.

With that as background, when someone presses me on which ETF I would pick as the best ETF in the world, I have a standard answer: PowerShares Golden Dragon China Portfolio ETF (PGJ).

The Golden Dragon tracks the performance of all Chinese stocks that trade on U.S. exchanges as American Depositary Receipts (ADRs). And while I’m clearly not big on most ETFs, there are three reasons I think PGJ is a good bet.

First, the economy of China, which has been a major concern for global investors for years, looks like it’s going to avoid the hard landing that many predicted. Everybody knew that the country’s decades of double-digit economic growth couldn’t go on forever, but many investors feared that any slowdown could go too far, with the Chinese economy grinding to a halt with disastrous consequences.

This week, we got positive news on three key Chinese indicators in August: industrial output up 6.3%, retail sales expanding by 10.6% and physical asset investment increasing 8.1%. All of these readings came in ahead of expectations, indicating healthy growth.

Second, PGJ has been trading in a range for a long time, since October 2013, to be exact. Here’s a monthly chart of PGJ, showing China’s progress in 2006 and 2007 as investors first discovered the country’s potential, the ETF’s rebound from the Great Recession (2009 – 2011) and the most recent three full years of trading up and down with lots of movement but little progress.

PGJ Chart

We have made good money buying individual stocks during the uptrends. We haven’t made any major new highs in three years, so if I had to pick an ETF, I think PGJ is ready.

The third reason I like PGJ is that all of its Chinese stocks have been through the vetting process that U.S. exchanges require for all new listings. So the revenue and earnings histories of the ETFs components have been under same microscope as U.S. IPOs. That’s a real confidence builder for those who are skeptical of Chinese bookkeeping standards.

So there you have it, my candidate for Best ETF in the World.

Personally, I still prefer to buy individual stocks, but if you have a taste for the kind of country bets that ETFs make possible, this is my pick.

To get my top China stock picks, consider taking a trial subscription to Cabot Global Stocks Explorer by clicking here.

Fortune Cookie

“A ship is safe in harbor, but that’s not what ships are for.” 

-William Shedd 

Tim’s comment: Your money, too, is safe in the bank, but that’s not what money is for. After it’s used to secure the necessaries—health, education, housing, entertainment—it should be grown, so it can do more!

Paul’s comment: As our economic system was originally explained to me, the capitalist system is based on capital investment, which involves risk, not on stashing money in mattresses, bonds and banks. Cabot has 46 years of experience helping individual investors make risk work for them and getting their boats out of the harbor!


Timothy Lutts

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