Emerging markets had an ugly performance during the first half
of the year, seem to be slowly returning back on track, thanks to
a no taper announcement by the Fed in its September policy and a
bout of recent encouraging data. (read:
3 ETFs to Profit from the Manufacturing
The HSBC Emerging Markets Index (EMI) figure for the month of
November is one of the indicators signaling the gradual
strength. The index rose to 52.1 from 51.7 in October.
Though modest it still signifies that emerging markets are bound
upward as any number above 50 symbolizes a growth trend.
Moreover, November's EMI growth indicates accelerating business
activity since March this year across the emerging markets at
large. The rise in business activity is mainly buoyed by a boost
in the manufacturing sector. ("EMI is a monthly indicator derived
from the national HSBC Purchasing Managers' Index (PMI) reports
of 17 emerging economies.")
The pick up in the manufacturing sector was largely driven by a
revival in new export orders. Before we analyze the emerging
market ETFs which could stand to gain from the export boom, let's
dig a little deeper at the performance of these emerging
Buy These Emerging Market ETFs on the Upswing
Inside the Emerging Economies
New export orders from South Korea grew steadily in November led
by strong demand from some of the key Asian markets. Moreover,
the manufacturing sector in Taiwan picked up the most in almost
one and a half year. A healthy backlog as well as rise in the
output spurred growth.
India also witnessed a surge in manufacturing activities. Leading
companies ramped up their production for the first time since
April, following a wave of new orders. Manufacturing activities
within the world's second largest economy - China - also
witnessed an upward trend.
The world's second largest economy - China - recently surprised
the market with its November export figures. China's exports for
the month of November rose 12.7% year over year to $202.21
billion, clearly outpacing the consensus estimate of 7%
year-over-year growth. (read:
Upbeat China Exports Put These ETFs in Focus
Brazil also saw a rise in manufacturing output in November,
though the rate was nominal. In spite of a stable new export
business, total fresh orders fell.
Emerging Market ETFs in Focus
Given the recent upbeat data, investors seeking to invest via the
ETF route can keep a track of the ETFs mentioned below. Emerging
market economies can benefit going forward, if the surge in
export continues in the following months.
Investors should note that the below mentioned ETFs have a Zacks
ETF Rank "2' and are thus expected to outperform in the months to
Vanguard FTSE Emerging Markets ETF
This ETF is the most popular and the largest fund among the
emerging market space and manages a huge asset base of $45.7
billion. With annual fees of 18 basis points it is also one of
the cheapest within its category.
The product holds a basket of 922 stocks, with the concentration
level in the top 10 holdings at 16.7%, suggesting that the fund
is spread among various companies as well.
Sectoral holding of VWO relies heavily on Finance (25.55%),
followed by Technology (11.71%), Basic Materials (10.5%) and
Energy (10.7%), each with double-digit exposure. The product has
the largest exposure to China (18.69%), followed by Brazil (12%)
and Taiwan (10.91%). (read:
3 Financial ETFs to Watch on Volcker Rule
The product has returned 3.29% in the past one month.
iShares Core MSCI Emerging Markets ETF (
The ETF tracks the MSCI Emerging Markets Investable Market Index,
giving investors exposure to a huge basket of 1760 companies. The
fund has an AUM of $2.6 billion while charging investors the same
fees as VWO. The product is well spread across individual stocks
with the top three holdings being Samsung Electronics Co Ltd,
Taiwan Semiconductor Manufacturing Co Ltd. and China Mobile Ltd.
Sectorally, like VWO, this fund also has the highest allocation
to the Financial sector (21.94%), followed by Technology (14.71%)
and Consumer Cyclical (8.85%). Country wise, China occupies the
top spot (17.92%), followed by South Korea (13.35%) and Taiwan
The fund added 3.36% during the last one month.
iShares MSCI Emerging Markets Minimum Volatility Index
The fund provides exposure to low volatility stocks in the global
emerging market space by tracking the MSCI Emerging Markets
Minimum Volatility Index. It is also one of the largest ETFs with
about $2.5 billion in AUM while volumes are pretty good. The fund
charges 25 bps in fees and expenses.
With 225 holdings, the product allocates a small portion in each
of the securities (less than 1.60%) that could keep the portfolio
balanced among the various companies and prevent heavy
concentration. From a sector look, Financials dominate this fund
making up for 26.42% of the basket. China (19.46%), Taiwan
(16.32%) and South Korea (11.67%) are the top countries in terms
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ISHARS-MS EMMV (EEMV): ETF Research Reports
ISHARS-CR MS EM (IEMG): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
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