The vast majority of investors may not realize they own the
wrong emerging markets ETF, and switching into the right one can
make prospective investment opportunities in the developing world
even better, IndexUniverse President of ETF Analytics Matt Hougan
said in a recent appearance on CNBC.
IEMG, GXC And EMLC
On the equities side, Hougan touted the SPDR China ETF
(NYSEArca:GXC) as well as the iShares MSCI Core Emerging Markets
ETF (NYSEArca:IEMG). He said both GXC and IEMG drilled into
smaller-cap holdings, meaning investors gain access to more
entrepreneurial pockets of developing markets and not just the
biggest firms, which is what first generation funds have done.
"About 80 to 90 percent of investors are in the wrong
emerging-markets ETF," Hougan told CNBC studio journalists. "They
should shift into one that has small-cap exposure."
He noted that the small-cap exposure in the new iShares Core
IEMG has helped it outperform its older and more expensive sibling,
the iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM) by 3
percentage points in the past three months.
Elsewhere in the emerging markets, Hougan said local currency
, such as the Market Vectors Emerging Markets Local Currency Bond
ETF (NYSEArca:EMLC) were a relatively safe and effective way to
find decent yields at a time when benchmark Treasury debt isn't
yielding much at all.
"I think this is a no-brainer. You get better balance sheets,
better growth and a significantly higher yield-and I mean
significantly:1 percent versus 5 percent. I think this is a trade
not just for next year, but for the next 10 year," Hougan said.
Playing The Yen
Much has been made of Japan's plans to weaken the yen in hopes
of boosting its legendary export sector. But it's not clear that
enough investors understand how currencies can affect returns.
Hougan said first-generation ETFs, such as the iShares MSCI
Japan Index Fund (NYSEArca:EWJ), leave investors long the yen,
which can be terribly deleterious to returns when the Japanese
currency is losing value relative to the dollar, as it has in the
past few months.
He pointed to the perfect answer in an ETF wrapper, the
WisdomTree Japan Hedged Equity Fund (NYSEArca:DXJ), which pulls the
dollar-yen cross entirely out of the returns profile.
"DXJ gives you that good upside exposure to Japanese stocks, but
shorts out the yen exposure. You get the best of both worlds. It's
definitely a solid pick for next year."
Hougan also singled out the Global X SuperDividend ETF
(NYSEArca:SDIV), saying it represented an expansion into
high-yielding international equities.
The fund takes the 100-largest-dividend-paying companies in the
world, adjusts slightly for dividend sustainability and pays an
8-plus percent yield.
That's a lot more than the 5 percent that the most high-yielding
domestic dividend-focused ETF delivers.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2013 IndexUniverse LLC
. All Rights Reserved.