Emerging Markets (EM) are receiving back-to-back positive signals in the form of cheap cash inflows. Hot money, which flowed in only from the U.S. till last year, will now come also from the Euro zone, which has launched its own QE this year. Moreover, since the Fed seems in no rush to hike the key U.S. rates, EM ETFs are likely to see a surge of investments despite the QE wrap-up in the U.S.
The enthusiasm is validated from the fact that the (ARCA:SPY) ETF has added about 2.8% so far this year (as of February 23, 2015) while Vanguard Emerging Markets ETFs (ARCA:VWO) is up about 4.4%. Currently, SPY is trading with a P/E (ttm) ratio of 17 times while VWO is much cheaper--trading with a P/E (ttm) of 13 times.
However, although emerging markets investments drew significant interest from the developed nations in the past decade, they are traditionally considered as riskier proposition than domestic investments. So, before plunging into a broader emerging market pool, investors need to carefully weigh up the country-specific strengths.
Per analysts, Asian earnings are rising presently while corporate Latin America is lagging. As a result, investors are naturally bent on Asia-heavy funds now instead of South America which is essentially commodity rich and witnessing a choppy spell in the commodity market downturn.
On the other hand, most Asian emerging markets are benefitting from the commodity market slump especially low oil price (Read: 3 Country ETFs to Benefit from Falling Commodity Prices)
Moreover, investors should look for products which have high chances of outperformance in the days to come. We highlight a few EM ETFs that were upgraded to a Zacks ETF Rank of 2 or ‘Buy’ rating lately on the basis of their wining potential and lower levels of expected volatility.
These ETFs were promoted from a Zacks Rank #3 (Hold) this earnings season, have a cheaper market valuation than the broader U.S. ETF, and thus suggest nice entry points.
Vanguard Emerging Markets ETFs (ARCA:VWO)
VWO is the most popular emerging market ETF with about $47 billion in assets. The fund trades in volume of more than 10 million shares a day, ensuring narrow bid/ask spreads and low trading costs. The product holds 990 stocks in its basket.
Taiwan Semiconductor (NYSE:TSM) (3.2%), Tencent Holdings (2.3%) and China Mobile (NYSE:CHL) (2%) are the top three spots of the fund. Other firms hold not more than 1.7% share, suggesting modest diversification across each security.
For sectors, financials (28%) gets the maximum allocation closely followed by the technology (14%), energy (10%), and telecom (9%) sectors. Among various nations, China (23%), Taiwan (14%) and India (11%) enjoy double-digit allocation in the fund (read: Are China ETFs in Trouble?). The fund charges a fee of 15 basis points annually.
MSCI Emerging MarketsValue Index Fund (NASDAQ:EVAL)
This fund looks to track the MSCI Emerging Markets Value Index. Given the ongoing turbulence in the global market, some value focus is warranted. Though presently waning, China is the top priority of the ETF with about 23% exposure, Taiwan (13.1%), South Korea (13.1%), and South Africa (7.7%) round out the next three positions.
The fund invests about $22 million in assets in 472 stocks. It charges 49 bps in fees. The product is well spread out across each component as none of these accounts for more than a 4.44% share. From a sector look, financials (32.7%), energy (13%) and telecom (12.4%) take the top three spots. The fund has gained about 1.9% in the year-to-date frame (as of February 23, 2015). The fund yields about 2.92% as of the same date. Currently, the ETF is trading with a P/E (ttm) of 10 times (read: 3 Foreign ETFs Rising Despite Market Volatility).
S&P Emerging Markets Low Volatility Portfolio (NYSE:EELV)
This ETF – tracking the S&P BMI Emerging Markets Low Volatility Index – invests about $227.3 million of assets in 201 securities from emerging markets. The Index comprises the 200 least volatile stocks of the S&P Emerging BMI plus Large Mid Cap Index over the past 12 months. The fund charges net expense ratio of 29 bps.
Taiwan takes up the top spot with 28.04% of exposure while the top 10 holdings make up about 10% of the fund. Notably, Taiwan is a relatively well-placed nation in the emerging markets’ pack. Malaysia (15.5%), South Africa (11.2%) and China (8.9%) take the next three spots.
Currently, the ETF is trading with a P/E (ttm) of 14 times and is up 1.7% (as of February 23, 2015) (read: Beyond India: Look at These Overlooked Broad EM ETFs).
iShares Asia 50 ETF (NYSE:AIA)
The fund gives exposure to 50 important companies from Asian countries including China (41.7%), South Korea (21%), Taiwan (18.1%), Hong Kong (10.2%) and Singapore (7.5%). The fund invests about $367 million in assets in 51 stocks. The fund is heavy on Samsung (11.01%) followed by 6.6% of assets invested in Tencent and 6.54% assets in Taiwan Semiconductor.
The fund charges about 50 bps in fees. It is up 4% this year and is trading with a P/E (ttm) of 11 times presently (as of February 23, 2015).