Amid compelling valuations in specific countries, China and
India for example, and in the broader universe, emerging markets
are looking attractive again. Year-to-date, the SPDR S&P 500
) has outpaced the iShares MSCI Emerging Markets Index Fund
) by about 480 basis points.
That trend may be set to reverse course, and as the Wall
Street Journal reported on Thursday,
some professional investors
are already trimming exposure to U.S. equities in favor of
emerging market fare.
At the ETF level, the proof is in the pudding. Emerging
markets ETFs have raked in $9 billion in assets just since the
end of August with EEM gaining $1 billion, the iShares FTSE China
25 Index Fund (
) hauling in $662.7 million and the iShares MSCI Brazil Index
) raking in $489.3 million,
according to ETF Trends
While money is flowing into emerging markets ETFs, it pays to
remember throwing money at any old fund is not a winning
strategy. Nor is relying on funds such as EEM or the Vanguard
MSCI Emerging Markets ETF (NYSE:
) to capture the best gains. Here are some ideas for emerging
market ETFs that have the potential to outperform as investors
pump cash into the asset class.
iShares MSCI Emerging Markets Minimum Volatility Index
Now a year old, the iShares MSCI Emerging Markets Minimum
Volatility Index Fund has proven to be a prodigious gatherer of
assets with $546.5 million in assets under management. EEMV has
also proven to be a multi-country developing markets play than
EEM or VWO. Year-to-date, EEMV has outpaced its two larger rivals
by about 600 basis points each.
Investors looking for Latin America exposure might want to
consider pairing EEMV with an ETF with heavier allocations to
that region. Brazil, Chile and Colombia combine for less than 17
percent of EEMV's weight.
Global X FTSE Colombia 20 ETF (NYSE:
Speaking of Latin America, as was mentioned earlier, money has
been flowing into EWZ. However, EWZ and other Brazil ETFs are the
"usual suspects" of the Latin American investment thesis.
Year-to-date, GXG has simply embarrassed EWZ in terms of returns
with the former up 25.2 percent and the latter in the red.
More importantly, GXG has shown good relative strength
compared to EWZ in the past month. It may feel like EWZ is moving
higher, but in the past month, that ETF is off 1.8 percent while
GXG is up 6.6 percent. Colombia is now
South America's second-largest economy
and its debt burden is declining.
The ETF's P/E ratio is just under 17.5 and its price-to-book
ratio is 1.49. Those numbers compare favorably with EEM. In other
words, investors can grab GXG at a comparable valuation to EEM
and likely expect better returns in near- to medium-term.
iShares MSCI Philippines Investable Market Index Fund
With a gain of almost 33 percent this year, the iShares MSCI
Philippines Investable Market Index Fund has been one of the
top-performing country-specific ETFs. EPHE has over $132 million
in AUM, indicating it will certainly survive, but considering the
strength in Philippine equities this year, that AUM figure says a
lot of investors are missing out on the
the good news story that is the Philippines
Favorable demographics and a strong government balance sheet
bode well for the long-term outlook with the Philippines. EPHE
trades at a premium to the broader emerging markets universe, but
the premium is justified based on past performance and future
Investors should note EPHE is not the China play many would
assume it is by looking at a map. Over the past six months, the
ETF's correlation to the SPDR S&P China ETF (NYSE:
) is just 0.63,
according to State Street data
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