More than eight months into the year, investors by now know
the sad song sung by a plethora of emerging markets ETFs.
Price decay among emerging markets ETFs has seemingly known no
bounds as bond, currency, equity-based, diversified and single
country funds have slumped.
With about four months left in 2013, there are two clear, but
diverging viewpoints on near- to medium-term outlook for emerging
markets equities. One group believes widening account deficits,
tumbling currencies and other factors will continue to plague
once high-flying markets like India and Indonesia. The other
group believes that the under-performance of developing world
stocks relative to U.S. shares is bound to end soon as investors
embrace compelling valuations.
Both groups could be vindicated, but the bulls will fair
treatment here as will the bears in another piece. Some emerging
markets ETFs are already showing signs of life, indicating
investors will want to keep an eye on the following multi-country
Some EM ETFs Were Pretty Good In August
First Trust Emerging Markets AlphaDEX Fund (NYSE:
) The First Trust Emerging Markets AlphaDEX Fund is an ideal ETF
for the investor that wants ample China exposure, even more than
is offered in large diversified emerging markets ETFs, without
the commitment of a single-country fund. Additionally, FEM's 153
holdings have a median market value of just $5.1 billion, which
shows the fund is not excessively exposed to state-controlled
China checks in at 31.4 percent of the FEM's weight, which is
not a problem with
Chinese stocks soaring as they currently are
. The question is what other countries will contribute to FEM's
upside? It will have to be some combination of Brazil, Turkey,
Thailand, Mexico and Poland, a group that combines for over 37
percent of FEM's weight.
The prospect of Turkey and Thailand doing the heavy lifting
appears dubious at the moment. Good news for valuation fanatics:
FEM is cheap, even by the current low bar set by the broader
emerging markets universe. FEM has a P/E ratio below nine and a
price-to-book ratio below 1.2,
according to First Trust data
WisdomTree Middle East Dividend Fund (NASDAQ:
) The WisdomTree Middle East Dividend Fund is not a pure emerging
markets ETF because Qatar and the United Arab Emirates, almost 56
percent of the fund's weight, still have until May 2014 before
the jump to emerging markets status
GULF is off 6.6 percent in the past month due to two primary
factors. First, investors have started to believe that stocks in
Dubai became too richly valued in the run-up to the emerging
markets promotion. Second, the situation in Syria has amplified
volatility for ETFs with exposure to Middle East stocks.
The Syria-induced decline has created a scenario where some of
the hot money is getting shaken out of Dubai stocks, creating an
opportunity for investors that realize the long-term potential of
investing in Gulf Cooperation Council states. Investors are
compensated for the risk
with under-appreciated dividends
. GULF's 30-day SEC yield is 5.23 percent.
PowerShares S&P Emerging Markets Low Volatility ETF (NYSE:
) EELV is already showing signs of being a legitimate rebound
play with an almost three percent gain in the past week. The fund
has a few other things in its favor, including no significant
exposure to India and Indonesia. Simply put, "low volatility" and
those markets do not belong in the same sentence.
The obvious hurdle EELV has to deal with is its almost 17
percent weight to Malaysia, the fund's second-largest country
weight behind Taiwan. Normally low beta compared to other
emerging markets, Malaysia is home to deteriorating credit
quality and immense structural issues, two factors that could
prompt increased capital flight.
EELV is buffered by exposure to Taiwan, Chile and South Korea,
to name a few. In another sign of EELV is on the right track, it
is one of a scant number of emerging markets ETFs to see net
inflows this year. In fact, EELV's assets under management tally
grown more than two and a half times
For more on ETFs, click .
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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