An Olympic 'powerhouse portfolio'

"While watching the Olympics, I couldn’t stop thinking about the investment opportunities of the various countries participating in the games," says exchange-traded fund expert Carl Delfeld.

The editor of Around the World with ETFs states, "While it is admittedly a stretch, let’s consider what an ETF porfolio of the top ten countries in the Beijing Olympics medal count would look like."

"I hope that while watching the Olympic games many investors were also reminded at how the world is changing and why they need a global portfolio to capture value and growth around the world.

"The U.S. did remarkably well across the board underscoring its role as the world’s leading investment destination. China surged to win the most gold and reach the symbolic level of 100 medals. 

"Quite an achievement that punctuates China’s growing heft. With the Shanghai Composite down 55% this year, it has come down to earth and is interesting from a valuation perspective.

"Next comes Russia with a performance fueled by a strong Olympian tradition and petro dollars but perhaps a bit overshadowed by the Georgian fiasco. I will take a pass on this one even though it is off 36% since just May.

"Next is the UK and Australia. Both are financial-oriented markets but the UK is having a much harder time coping with its real estate bubble, slower growth and a weak sterling. 

"Australia, while not cheap, has strengthened on the bounce in commodities evidenced by strong profits at BHP and Rio Tinto. We need to keep an eye on more competitive banking market since the top four Aussie banks represent 20% of the market’s value.

"France and Germany were neck and neck representing more than half of continental Europe’s largest companies and market cap. Germany is facing a sharp slowdown and weak consumer confidence but has some great multinationals like Siemens in its ETF basket.

"I like France primarily because after a slow start, President Sarkozy is gaining traction in executing some market –oriented campaign promises.  Both of these markets are relatively cheap on a price-to-earnings and price to cash flow basis.

"Next comes South Korea, an industrial powerhouse, favored partner of China and striving mightily to be noticed on the world stage. It has spent a bundle supporting its currency and exports have proved to be resilient. 

"Next is the surprisingly robust performance of Italy. Along with Ireland, Italy has caught my eye as one of the cheapest markets in the world with the added bonus of undertaking significant market reform.

"Alas, the Ukraine grabs the number ten slot but without an ETF the mantle falls on Japan to round out the top ten. This is rich in symbolism since Japan seems to be struggling and searching for a way to regain its mojo, consumer and investor confidence and elusive economic growth.

"On the plus side, Japan ETFs offer very high quality multinationals and smaller companies trading collectively at below book value. An important advantage of having exposure to Japan ETFs is that its market is only 29% correlated to the S&P 500 index.

"Below is a portfolio of Olympic powerhouses, with the United States represented by the S&P 500:

Standard & Poors 500 (NYSE: SPY)
iShares FTSE/Xinhua China 25 (NYSE: FXI)
Market Vectors Russia (NYSE: RSX)
iShares United Kingdom (NYSE: EWU)
iShares Australia (NYSE: EWA)
iShares Germany (NYSE: EWG)
iShares France (NYSE: EWQ)
iShares South Korea (NYSE: EWY)
iShares Italy (NYSE: EWI)
iShares Japan (NYSE: EWJ)