Emerging markets and their corresponding
have been performing poorly this year due to a slowdown in
domestic demand, the lingering Eurozone crisis (which can impact
exports), and strengthening of the U.S. dollar (read:
Three Country ETFs Struggling in 2013
This year is proving that investing in emerging markets also
demands a steady appetite for risk as most of these nations are
commodity-centric economies which make them susceptible to any
downtrend in the global economy.
Currency risk is also a factor that is ubiquitous as far as
emerging market investments are concerned. This is especially
apparent now that the dollar is surging, leaving repatriated
local currency investments in a sluggish state.
In addition to these woes, high inflation and interest rates
in the emerging markets, especially compared to the developed
market counterparts, are creating pressure. This situation is
making it somewhat difficult for certain emerging markets to grow
at a solid clip, marking one of the first times in years that
this has been the case.
Nevertheless, it is not entirely correct to say that all the
emerging markets ETFs are lagging so far in 2013. A couple of
funds have impressed with their performances so far this year as
these offer more in terms of diversification across various
emerging nations (read:
Time to Buy Emerging Market ETFs?
Not only do these nations have greater growth potential, they
often have lower levels of correlation with their developed
market counterparts and typically higher yields. This makes them
attractive destinations for aggressive and income seeking
Further, with globalization, many emerging markets have become
vital contributors to the overall global economic growth picture.
In fact, the rising population and increasing per capita income
in these economies make them accountable for much of the global
Below, we have highlighted the three top ETF performers which
have not only managed to stay profitable, but have provided
handsome returns in the year-to-date timeframe (see more in the
. These are poised for strong growth further into 2013,
considering a strong growth momentum in the emerging economies
and attractive valuation of stocks:
EGShares Consumer Goods GEMS ETF (
Launched in June 2011, this ETF tracks the Dow Jones Emerging
Markets Consumer Goods Titans 30 Index, which measures the
performance of the largest emerging market companies in the
consumer goods industry.
The product holds a total of 30 securities with a large
concentration on the top 10 holdings (roughly 55% of assets).
Also, the fund has a slight tilt towards one stock - Cia de
Bebidas das Americas - with 10.2% of the assets.
From a sector perspective, food producers take the top spot
with roughly one-third of the assets, while beverages,
automobiles and personal goods rounded up to the next three spots
in the basket.
In terms of individual countries, Mexico enjoys the top spot
with a share of 23.9% while Brazil, India, Indonesia and China
also get double-digit allocations with a share of 16.50%, 13.90%,
12.1% and 11.0%, respectively (read:
Inside the Surging Mexico ETF
The product failed to garner investor interest with AUM of
$2.5 million and a paltry volume of about 1,000 shares per day.
This indicates a wide bid/ask spread, thereby increasing the
total cost for the fund beyond the expense ratio of 0.85%. The
ETF added 7.28% in the year-to-date timeframe while yields little
0.94% in annual dividend.
EGShares Health Care GEMS ETF (
This fund targets the healthcare industry in emerging markets
by tracking the Dow Jones Emerging Markets Health Care Titans 30
With a total of 30 stocks in its basket, the product is
heavily concentrated on it top 10 holdings with 59.50% of assets.
The top three firms - China Aspen Pharmacare, Sun Pharmaceutical
and Life Healthcare - comprise about 26.90% of the combined share
in the basket.
While the product allocates 65.2% in pharmaceuticals &
biotechnology, healthcare equipment & services take the rest
in the basket. The ETF spread out across the entire spectrum of
asset classes with 49% in mid cap, 40% in large cap, and 11% in
small cap (read:
5 Sector ETFs Surging to Start 2013
In terms of country allocations, India is at the top (30.9%),
followed by South Africa (29.3%) and China (18.3%). HGEM is an
unpopular ETF in the emerging market space with just $5.9 million
in AUM and average daily volume of 4,000 shares.
Due to this illiquid nature, the ETF is a relatively high cost
choice with a wide bid/ask spread and expense ratio of 0.85%. The
fund gained 6.90% year-to-date and yields little (0.17%) in
First Trust Emerging Markets Small Cap AlphaDEX Fund (
This is a new fund introduced in Feb 2012 and since then
managed assets of just $3.7 million. The ETF provides exposure to
small cap emerging market by employing the AlphaDEX methodology.
This methodology uses fundamental growth and value factors to
select stocks from the S&P Emerging Markets BMI universe.
Hopefully by using this methodology, and giving higher
weighting to more favorably ranked firms, FEMS should generate
positive alpha relative to traditional passive indexes. The fund
has a total of 203 securities in the portfolio.
In terms of the overall portfolio, the product is highly
exposed to three main sectors - industrials, consumer
discretionary and financials - each representing at least 18%
share on average.
From an asset individual perspective, the fund does an
excellent job of spreading out assets as none of the stocks makes
up more than 1.04% of FEMS, suggesting minimal company-specific
risk and prevention of heavy concentration.
Country exposure is tilted towards China at 32.79% of the
total while other countries like Thailand, Indonesia and Taiwan
make up for less than 10% of assets in the basket (read:
Buy China on the Dip with These 3 ETFs
This product also has a wide bid/ask spread, trading in
volumes of less than 2,000 shares per day. It costs 80 bps in
fees per year from investors. The fund has added 8.86%
year-to-date and pays a good dividend yield of 1.84%.
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FT-EM MKT SC (FEMS): ETF Research Reports
EGS CSM GD GEMS (GGEM): ETF Research Reports
EGS HLT CA GEMS (HGEM): ETF Research Reports
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