The proverbial "they" often say "It is not what you know, it
is who you know." That phrase has plenty of meaning in everyday
life, but, believe it or not, it can also be applied to the world
of exchange traded funds. Specifically, the saying can be applied
directly to select diversified emerging markets
As has been noted, some popular diversified emerging markets
ETFs have been plagued this year by
large weights to countries such as Brazil, China
and South Korea
. On Wednesday, Benzinga reported that the country-specific ETFs
tracking the top seven nation weights in the iShares MSCI
Emerging Markets Index Fund (NYSE:
) are all down year-to-date.
Conversely, five of the seven country ETFs tracking the next
seven country allocations within are up year-to-date. Averaged
together, that group of seven offers a positive year-to-date
Investors looking to capture the best of the emerging world do
not need to own five or six ETFs because one ETF that proves it
is who you know when it comes to country weights is standing tall
in 2013. That fund is the PowerShares DWA Emerging Markets
Technical Leaders Portfolio (NYSE:
The $438.5 million PIE is up about 7.3 percent year-to-date
and that is even with a combined 21.6 percent allocation to South
Africa and South Korea, two of the markets that are plaguing EEM
and comparable ETFs this year.
Actually, South Africa and South Korea are PIE's fourth- and
fifth-largest country exposures with weights of 11.35 and 9.29
percent, respectively as of March 27,
according to PowerShares data
PIE has been able to fight off the woes of those markets by
"knowing" some of this year's top developing world investment
options. Translation: Indonesia, Thailand and Mexico combine for
about 43 percent of PIE's weight. Alone, Indonesia is just less
than 16 percent of PIE's weight. Said differently, Southeast
Asia's largest economy has more than five times the weight in PIE
that it does in EEM.
That allocation and others make a difference. The returns
prove as much. Year-to-date, the average return for the iShares
ETFs tracking Indonesia, Thailand and Mexico is 10.8 percent. On
the other hand, EEM's top three country weights - China, South
Korea and Brazil - are all in the red this year as measured by
the relevant corresponding ETFs.
Clearly, PIE's "secret sauce," though it is no secret, is
using relative strength as a method of finding the best emerging
world opportunities. Good news for PIE investors, but maybe not
so much for Brazil and China bulls. Those two nations combine for
just 6.7 percent of PIE's weight. India and Russia are not even
included in PIE's lineup at the moment.
Add Turkey and the Philippines into the mix, and PIE looks all
the more impressive. Those two countries combine for 13.7 percent
of the ETF's weight. Add those to the aforementioned trio of
Indonesia, Thailand and Mexico and that is nearly 57 percent of
At the individual ETF by adding Turkey and the Philippines to
the Indonesia, Thailand and Mexico mix, the average year-to-date
return for those five iShares ETFs jumps to 11.1 percent (not
including Thursday's performances).
PIE offers up another advantage. It is less volatile than some
of the larger, diversified emerging markets ETFs. PIE's
year-to-date volatility is just 11 percent compared
percent for EEM
. Then there is the fact that the Dorsey Wright Emerging Markets
Technical Leaders Index has outpaced the MSCI Emerging Markets
Index and the MSIC Emerging Markets Growth Index over the past
five years, according to PowerShares data.
No cute pie analogies are needed. Investors that cannot
allocate capital to all of the country-specific ETFs tracking
Indonesia, Thailand and friends should use PIE to profit from
what are clearly 2013's emerging markets leaders.
For more on emerging markets ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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