There are some key differences when it comes to the indexing
process for U.S.-focused broad market
and those funds that offer exposure to other countries. Namely,
an ETF such as the SPDR S&P 500 (NYSE: SPDR) or the
PowerShares QQQ (NASDAQ:
) can be benchmarked to an index many investors are already
When it comes to international ETFs, those funds are rarely
linked to the marquee index in that country. For example, the
iShares FTSE China 25 Index Fund (NYSE:
) is not benchmarked to the Shanghai Composite or any other
well-known China index for that matter. FXI, the largest China
ETF by assets, tracks an index provided by FTSE Group and scores
of other ETFs that track global markets do so by using MSCI
This scenario creates an interesting situation under which
investors can find themselves owning an ETF that is lagging the
benchmark index in a particular. Or, better yet, investors can
become involved with a global ETF that tracks an index that
outperforms the major bourses in that country. Here are a few
examples of some ETFs that have been doing just that this
iShares MSCI Mexico Investable Market Index Fund (NYSE:
Despite some post-U.S. election declines, there is no ignoring
the iShares MSCI Mexico Investable Market Index Fund's stellar
20.2 percent year-to-date gain. EWW's bullish ways are all the
more impressive when considering the Mexican Bolsa IPC Index is
up "just" 10.8 percent,
according to Bloomberg data
If there is a knock on EWW, it is certainly not its inability
to outperform the broader Mexican equity market. Rather, it would
be noticeable tracking error with its own index. Over the past
year, the MSCI Mexico Investable Market Index is up 14.3 percent
while EWW is up 12.5 percent,
according to iShares data
. A gap of 1.8 percent is far wider than EWW's 0.73 percent
tracking error since inception.
iShares MSCI Philippines Investable Market Index Fund
The Philippines PSEi Index has soared almost 25 percent this
year. On its own, that is not too shabby, but it pales in
comparison to the almost 38 percent delivered by the iShares MSCI
Philippines Investable Market Index Fund. EPHE's narrow focus
(the ETF holds just 41 stocks) is one reason the fund has
outperformed the broader Philippine market.
The PSEi Index makes room for energy and materials names, but
those sectors combine for barely more than two percent of EPHE's
weight. In 2012, EPHE has been one example of an ETF with
excessive weight to financial services stocks that has thrived.
That sector accounts for over 38 percent of EPHE's weight, but in
the Philippines, that means more than just bank stocks. EPHE's
exposure to financials includes property developers and holding
companies. Property developers have provided a spark to
Philippine equities this year, benefiting EPHE along the way.
iShares MSCI New Zealand Investable Market Index Fund
Like EPHE, the iShares MSCI New Zealand Investable Market Index
Fund's narrow focus has helped the ETF outpace its home market.
The lone New Zealand ETF holds just 23 stocks and the top two
holdings represent a third of the ETF's weight.
If those stocks, Fletcher Building and Telecom New Zealand (
), falter, ENZL would be exposed. However, that is not what is
happening this year as ENZL is up 27.5 percent, including
dividends paid. That means the ETF is 625 basis points of ahead
of the New Zealand Exchnage Gross 50 Index.
And speaking of dividends, ENZL has a 30-day SEC yield of 4.26
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