Emerging markets once again took a toll from the global sell-off
in late July and early August due to escalating geopolitical
tensions in Ukraine and the Middle East. The political impasse due
to the Russian annexation of Crimea weighed heavily on global
Tensions escalated over the weekend when reports said that
Ukrainian forces had destroyed most of the Russian armored vehicles
seen crossing the Ukraine border while Russia denied any incursion
of fighters and vehicles across the border. The news came amid a
Russian humanitarian aid mission to the war-torn cities in eastern
Ukraine under the Red Cross, in an attempt to stop the conflict in
Ukraine and restore peace.
The Russian invasion, if confirmed, would mark a new stage in the
six-month clash and lead to a first direct military conflict
between the two adversaries since the crisis began in spring.
Moreover, the embittered relationship between Russia and the
western world has already added to the economic woes.
This is because Russia has imposed a tit-for-tat ban on food
imports from the Western countries in retaliation to sanctions
imposed on it over invading Ukraine. However, the tension eased
last week when Russia ended the military exercises near the
Ukrainian border and withdrew troops, suggesting that further
sanctions might come to an end (read:
Russian Food Import Ban Takes a Bite Out of These
Further, some positive developments in other key emerging markets
supported the rally in the stocks. South Korea reduced its
benchmark interest rate for the first time in 15 months by 25 bps
to 2.25% while weak Chinese data raised speculation that the
central bank will expand its stimulus program to boost growth in
Moreover, emerging markets are expected to grow stronger than the
developed countries like the U.S. and Japan. As per the
International Monetary Fund (IMF), emerging markets are expected to
grow 4.6% this year, well above the expected growth of 1.7% for the
U.S. and 1.6% for Japan.
To make the case stronger, emerging stocks appear cheaper at
current levels when compared to the stocks of the developed world.
Low valuations along with a slew of positive developments are
injecting fresh optimism into the emerging market stocks despite
the turmoil in Ukraine. While several emerging market ETFs have
performed remarkably well, the following three ETFs emerged as true
winners and surged to new 52-week highs last week (see:
all Broad Emerging Market ETFs here
SPDR S&P BRIC 40 ETF (
This fund provides exposure to the equities of Brazil, Russia,
India and China by tracking the S&P BRIC 40 Index. It holds 45
securities in its basket and is concentrated in the top 10 holdings
at 52.5%. In addition, the product is tilted toward the financial
sector accounting for more than one-third share while energy makes
up for another one-fourth share.
China dominates the fund return at 56%, followed by Russia
(18.34%), Brazil (18.03%) and India (7.60%). The ETF has amassed
$181.9 million while it charges 50 bps in fees. It trades in
moderate volume of more than 70,000 shares a day and hit a 52-week
high of $25.25 per share on August 15, representing a gain of about
5.6% so far in the second half of the year. BIK currently has a
Zacks ETF Rank of 3 or 'Hold' rating with a High risk outlook
3 Top Performing Emerging Market ETFs
First Trust Emerging Markets Small Cap AlphaDEX Fund (
This fund surged to a new one-year high of $39.08 on August 13,
representing nearly 5.4% gain since the start of the second half.
The ETF follows the Defined Emerging Markets Small Cap Index and
targets the small cap segment of the emerging market space. Holding
204 securities, the fund is well spread out across each component
as none of the security holds more than 1.35%. Chinese firms take
the top spot at nearly 30%, closely followed by Taiwan at 22.4%.
From a sector look, about one-fourth of the portfolio is allocated
to information technology while financials, industrials, consumer
discretionary and materials round off the top five with
double-digit allocation each. The product is often overlooked by
investors, as depicted by AUM of $76.6 million and average daily
volume of roughly 46,000 shares. The expense ratio came in higher
iShares MSCI Emerging Markets Minimum Volatility ETF (
The ETF provides exposure to 239 emerging market stocks having
lower volatility characteristics relative to the broader emerging
equity market. It follows the MSCI Emerging Markets Minimum
Volatility Index and is one of the largest and popular ETFs in the
emerging space with AUM of over $2 billion and average daily volume
of around 241,000 shares. The ETF charges 25 bps in annual fees and
The fund is widely spread across a number of securities as none of
these holds more than 1.55% of assets. Additionally, the product
provides diverse exposure to a number of emerging countries with
China, Taiwan and South Korea as the top three holdings. However,
the fund has a slight tilt towards financials with 26.9% share,
while consumer staples, information technology and
telecommunication services round off to the next three spots (read:
3 Safe Haven ETFs to Beat a Summer Slowdown
EEMV hit a one-year high of $62.50 per share on August 15, and the
fund has moved higher by about 4% quarter-to-date. It has a Zacks
ETF Rank of 3 with a Medium risk outlook.
The above-mentioned products could be worthwhile in the current
market turmoil and are clearly outperforming the broad emerging,
developed and global world so far in the second half of the year.
This is especially true as the ultra-popular Vanguard FTSE Emerging
Markets ETF (
) has gained nearly 3.4% in the same time period while iShares MSCI
EAFE Index (
) and Vanguard Total World Stock ETF (
) lost 3.3% and 1.1%, respectively.
This suggests strong growth and optimism in these countries moving
ahead into the year.
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SPDR-SP BRIC 40 (BIK): ETF Research Reports
FT-EM MKT SC (FEMS): ETF Research Reports
ISHARS-MS EMMV (EEMV): ETF Research Reports
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