Broadly speaking, emerging market ETFs have not impressed this
year. Many emerging market funds got off to stellar starts,
surging in January and February, but those flames have burned
out. Over the past 30 and 90 days, the returns offered by many
emerging market ETFs have failed to impress.
Bargain hunters that like to go shopping using traditional
valuation metrics, such as price/earnings and price/book ratios,
have plenty of funds to choose from that can be considered
inexpensive.
That is inexpensive relative to the broader developing nations
universe as measured by the iShares MSCI Emerging Markets Index
Fund (NYSE:
EEM
) or the Vanguard MSCI Emerging Markets ETF (NYSE:
VWO
). EEM, the second-largest emerging markets ETF by assets behind
VWO, currently trades at almost 15.5 times earnings with a
price/book ratio of 2.74,
according to iShares data
.
Of course, the trick goes beyond finding those funds that beat
EEM on those metrics. The real task is finding ETFs with superior
valuations and better chances for capital appreciation. Here are
a few to consider:
SPDR S&P China ETF (NYSE:
GXC
)
China bulls have had belted out a familiar refrain this year:
Chinese equities are cheap on a valuation basis. GXC's numbers
support that assertion. This $813 million fund, which is often
overshadowed by the iShares FTSE China 25 Index Fund (NYSE:
FXI
), has a P/E of less than 9.2 and trades at 1.52 times book
value.
Those are clearly more attractive numbers than what EEM
offers. However, GXC shares the same price/book ratio with FXI,
but the SPDR fund has the lower P/E ratio. Not to mention GXC is
up 4.6 percent year-to-date while FXI is up just half a
percent.
Market Vectors Russia ETF (NYSE:
RSX
)
Amid slumping oil prices, Russian stocks have been slammed. In
the past 90 days, the Market Vectors Russia ETF has given up 19
percent. That is better than the 22.7 lost by the U.S. Brent Oil
Fund, (NYSE:
BNO
) but RSX is trading at a P/E that is so low
it is not going unnoticed
.
Russia is the largest non-OPEC oil producer, so it is accurate
to say RSX and the other Russian ETFs need an oil rebound to
trade higher. For now, investors should consider the fact that at
the end of May, RSX had a forward P/E of 7.7 on a weighted
average basis and 5.5 based on the harmonic average, according to
Market Vectors data.
iShares MSCI Poland Investable Market Index Fund (NYSE:
EPOL
)
Poland is still co-hosting the 2012 UEFA Euro Finals, but the
Polish national team has been bounced from the tournament after
not even making it past the group stage. Football aside, Poland
has been knocked down by its
proximity to the Eurozone
.
Additionally, Poland is not an export-driven economy, meaning
it is far less beholden to the economic travails of the PIIGS
than outsiders would expect. That is good news for EPOL's
long-term prospects. It is worth noting that the ETF trades at
10.5 times earnings and 1.48 times the weighted average book
value of its components. Also consider the Market Vectors Poland
ETF (NYSE:
PLND
).
SPDR S&P Emerging Latin America ETF (NYSE:
GML
)
The SPDR S&P Emerging Latin America ETF could easily be the
one ETF on this list that deserves a warning. GML's risk is easy
to explain. For starters, a combined 30 percent of its sector
weight goes to materials and energy names. Second, and more
importantly, there is the 58% allocation to Brazil.
Yes, GML's valuation metrics (10.9 P/E and 1.55 price/book)
look nice, but the same sentiment
cannot be extended to Brazil at the moment
. The country is plagued by inflation concerns and a plunging
real. Global investors may dislike the impact the country's
government has had on business. Further, Brazilian oil giant
Petrobras (NYSE:
PBR
) is arguably the worst oil stock in the world. All these factors
combine to make any ETF with a large weight to Brazil
high-risk.
For more on ETFs with low P/E ratios, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.