The trading scene in the emerging markets, in particular the
Asia-Pacific region, took a turn for the worse over the past few
months with heightened fears of the Fed curbing its stimulus soon
gripping the region and affecting their capital flows. Threats of
conflict in Syria and the resultant rise in oil price further
intensified the trading turmoil.
Moreover, a continued rise in yields is attracting investments into
bonds of developed nations like the U.S. and Canada, and has
certainly taken a toll on the Asia Pacific countries. Notably,
India, Indonesia and Thailand have been the worst hit thanks to
sluggish currencies, current account deficits and inflationary
3 Currency ETFs Crushed in Emerging Market Rout
However, the bearish trends in the Asia Pacific are unlikely to
continue in the long term as many countries in the region are
stabilizing or showing improvements of late. Plus, with the U.S.
facing troubles of its own-thanks to a dysfunctional
government-some are beginning to look back abroad for exposure once
With Indonesia's central bank stepping in to support the rupiah and
hopefully restore some confidence into the nation's financial
system, it appears that the selling pressure is finally coming to
Recent data suggests that China, the world's second-largest
economy, is showing some signs of improvement after two years of
slowdown too. Both exports and imports have picked up while
manufacturing activity has strengthened to the highest level in 16
Focus on These China ETFs for Outperformance
Malaysia looks resilient and capable of withstanding the storm in
the Asia Pacific for the rest of the year. This is largely due to
the strong economic fundamentals supported by a healthy balance
sheet, low inflation, low unemployment, as well as recovery in both
domestic and international demand.
Meanwhile, the Philippines has also shown resiliency when facing
global economic turmoil. The nation manages to grow at a robust
rate even with some weakness in key developed markets, and the
outlook remains quite rosy. In addition, a moderating inflation
level supports the growth momentum of the economy.
Moreover, as most of the Asia-Pacific nations are
commodity-centric, improving global conditions would definitely aid
growth in these economies going forward.
Given this optimism, a look at the top ranked ETFs in the space
could be a good idea for investors in the current market
uncertainty. One way to find a top ranked ETF in the space is by
using the Zacks ETF Ranking system (read:
Zacks ETF Rank Guide
About the Zacks ETF Rank
A look at the top ranked emerging market ETFs can be done by using
the Zacks ETF Rank. This technique provides a recommendation for
the ETF in the context of our outlook of the underlying industry,
sector, style box or asset class. Our proprietary methodology also
takes into account the risk preferences of investors.
The aim of our model is to select the best ETFs within each risk
category. We assign each ETF one of five ranks within each risk
bucket. Thus, the Zacks ETF Rank reflects the expected return of an
ETF relative to other ETFs with a similar level of risk.
Using this strategy, we have found one ETF -
SPDR S&P Emerging Asia Pacific ETF (
- in the space that has a Zacks ETF Rank of 2 or 'Buy' rating (see:
). The details of this top fund are highlighted below:
GMF in Focus
This overlooked ETF provides broad exposure to the emerging
economies of the Asia-Pacific by tracking the S&P Asia Pacific
Emerging BMI Index.
The product holds a large basket of 351 stocks and is tilted
towards large cap securities, which account for 80% of assets. The
ETF puts nearly 21% in the top 10 holdings, eliminating
company-specific risk and prevents heavy concentration.
Taiwan Semiconductor Manufacturing, China Mobile Limited and China
Construction Bank Corporation occupy the top three positions. These
have a decent Zacks Rank and collectively make up for nearly 9% of
total assets in the basket. Other securities do not account for
more than 2.02% of assets.
In terms of sectors, financials take the top spot at roughly
one-fourth of the total, while information technology makes up just
less than one-fourth of the total (read:
3 Surging Financial ETFs Beating the Market
From a country look, Chinese firms dominate the portfolio at
38.88%, followed by Taiwan (27.27%) and India (13.59%). Other
countries such as Malaysia, Thailand, Indonesia and Philippines get
The fund has amassed $375.5 million in its asset base and trades in
average daily volume of more than 56,000 shares a day. This
suggests that investors have to pay an additional cost in the form
of a wide bid/ask spread beyond the expense ratio of 0.59%.
Like many of its emerging counterparts, GMF has also been under
pressure this year, losing over 4%. However, the ETF is up 4.8%
over the trailing one-year period and pays a decent dividend yield
of 2.45% annually, while its short term gain stands at 0.37% for
the trailing one month period (read:
Two Asia Pacific ETFs Avoiding The Crash
This ETF has clearly outpaced the ultra-popular broad emerging
market funds like
by wide margins both year-to-date and in the trailing one-year
the Emerging Asia Pacific ETFs here
Amid the gloomy outlook, this Asia Pacific ETF could be an
interesting choice for investors who still want to bet on the
beaten down emerging markets. The product is poised to outperform
its counterparts at least over the next one-year period.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ISHARS-EMG MKT (EEM): ETF Research Reports
SPDR-SP EM ASIA (GMF): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report