When it comes to diversified, or multi-country, emerging
, two funds reign supreme. Those being the Vanguard MSCI Emerging
which will soon drop MSCI as its index
, and the iShares MSCI Emerging Markets Index Fund (NYSE:
VWO and EEM are the two largest emerging markets ETFs by
assets. Both have superior brand recognition and both have
delivered impressive performances over long-term time frames.
Those factors might imply that VWO and EEM do not have worthy
rivals in diversified emerging markets ETF realm.
Actually, the opposite is true. There are several diversified
emerging markets ETFs that represent credible alternatives to the
aforementioned juggernauts. Remember that in this case,
"diversified" means the ETF offers decent exposure to a variety
of countries and regions and holds a large number of stocks. For
the purposes of this list, multi-country funds tracking just four
or five countries with just 30 or 40 holdings were excluded.
With that in mind, here are some of the top diversified EM ETF
ideas for 2013. In no particular order, of course.
FlexShares Morningstar Emerging Market Factor Tilt Index
In less than three months of trading, albeit somewhat quietly,
TLTE has proven itself to be one of the better new ETFs to debut
in 2012. TLTE has already attracted almost $37 million in assets
and has outperformed VWO since early October.
South Korea, Taiwan, Brazil and China are TLTE's largest
country weights and the ETF's 1,521 holdings familiar large-cap
emerging markets names such as Samsung, Taiwan Semiconductor
) and Petrobras (NYSE:
Before investors go thinking they have seen this movie before,
it is worth noting that TLTE really does "tilt" in a different
direction. Meaning, the ETF's index is screened for value names
and small-caps. As such, small-caps represent almost 30 percent
of TLTE's weight, a high percentage for a fund of this type.
iShares Core MSCI Emerging Markets ETF (NYSE:
It is fare to say that every ETF investor and his sister is aware
of the fee war that has taken place among issuers in 2012.
Perhaps it is too trite to say that investors are the
beneficiaries of rampant fee cuts, but IEMG indicates that might
be the case.
At its core, not pun intended, IEMG is the iShares vehicle for
undercutting VWO on price. Rather than lower EEM's expense ratio,
iShares simply created a new ETF, IEMG. IEMG charges 0.18 percent
per year compared to 0.2 percent for VWO.
The iShares product is another China-South Korea-Brazil-Taiwan
(in that order) heavy diversified EM ETF
full of a familiar roster
of holdings. In terms of what 2013 may have in store, as is the
case with all the ETFs mentioned to this point, IEMG will benefit
from continued bullishness in Chinese equities and a rebound for
SPDR S&P Emerging Markets Dividend ETF (NYSE:
Emerging markets firms are upping their dividend game this year
with the expect payouts from the 300 largest non-bank stocks in
the MSCI Emerging Markets Index
expected to rise to $52.2 billion
from $48.9 billion last year.
Better still is the fact that from China to India to Russia
and other developing nations as well, governments are forcing
companies to pay higher dividends. Some state-owned firms are
already decent dividend payers, but since their largest
shareholders (the home government) often want more money, there
is the potential for dividend growth and that buoys the case for
EDIV in 2013.
Brazil and Taiwan, already two of the better emerging markets
destinations for income investors, combine for nearly a third or
EDIV's weight. Remember this: EDIV has a 5.7 to Russia where
state-run firms are now required to pay a quarter of their
profits in dividends
Suitable alternatives to EDIV include the WisdomTree Emerging
Markets Equity Income Fund (NYSE:
) and the iShares Emerging Markets Dividend Index Fund (NYSE:
WisdomTree Emerging Markets SmallCap Dividend Fund (NYSE:
The WisdomTree Emerging Markets SmallCap Dividend Fund is the
dominant name among emerging markets dividend ETF focusing on
small-caps and with a distribution yield of six percent, it is
easy to see why. Year-to-date, DGS has risen 20.6 percent,
including dividends paid. Noteworthy is the fact that the ETF's
volatility of 15.7 percent makes it below that of large-cap
focused rivals such as EEM and VWO.
Looking to 2013, DGS needs a couple of things to go right in
order to repeat 2012's strong run. With Taiwanese equities
dominating the fund at 23.1 percent of its weight, Taiwan either
needs to keep the upside coming or multiple markets with DGS's
fold need to rise to the occasion and step in the event Taiwan
Second, DGS devotes 10.4 percent of its weight to Thailand,
one of the best performing Asian markets in 2012. As the premier
ETF for gaining exposure to Thai small-caps, DGS will benefit if
that market continues to flourish. The primary risk to this
thesis is that some experts are saying Thailand is overbought at
iShares MSCI Emerging Markets Minimum Volatility Index
The popularity of low volatility ETFs found its way to the
emerging markets genre where it has proven wildly successful as
well. As was
, it is almost a foregone conclusion that EEMV crosses the $1
billion in AUM mark in 2013.
It was just a few months ago that EEMV had about $600 million
in assets. Today, that total is over $817 million. Investors will
have to take on a richer valuation for the privilege of EEMV's
low volatility. The fund has a price-to-earnings ratio of 20.51
and a price-to-book ratio of 3.91,
according to iShares data
Those numbers are well ahead of what is found with EEM,
implying investors are paying up to reduce beta. EEMV does that.
The ETF's beta against the S&P 500 is 1.16 compared to 1.52
Alternative idea: PowerShares S&P Emerging Markets Low
Volatility Portfolio (NYSE:
). EELV's country weights differ significantly from EEMV's, so
while both are "low vol" plays, they are by no means close to
being the same ETF.
PowerShares DWA Emerging Markets Technical Leaders
Country exposure can make all the difference with diversified EM
ETFs and PIE's 14.1 percent year-to-date gain may be just as
attributable to what countries are not prominently displayed in
the ETF as it would be to those that are. That is to say PIE has
benefited from Brazil not being a large part of its lineup this
year at a time when Brazil has been the worst performer among the
In fact, PIE can be used as an alternative to or paired with
BRIC-heavy funds because PIE's largest allocation to a BRIC
nation is a 4.1 percent weight to China. Primarily, PIE is a play
on Asia's secondary and tertiary markets as South Korea,
Indonesia, Thailand and Malaysia represent over 48 percent of the
What that means for 2013 is that it would be constructive if
Indonesia sheds its laggard status
. Next, PIE can keep climbing if Thailand and Mexico (9.8 percent
weight) deliver anything close to the returns they have provided
For more on emerging markets ETFs, click
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.