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The emerging market space was hard hit by global worries, largely from the concerns stemming from the end of the Fed’s QE program, the lingering Eurozone crisis (which can impact exports), sluggish domestic demand and strong U.S. dollar.
Being commodity centric, these nations are susceptible to any downtrend in the global economy. Further, high inflation and interest rates in the emerging markets, especially compared to their developed market counterparts, are creating pressure (read: Emerging Market ETFs Tumble on Global Worries).
This situation has resulted in capital flight from the top emerging market funds like iShares MSCI Emerging Markets ETF (EEM) and Vanguard FTSE Emerging Markets ETF (VWO).
However, thanks to a lack of Fed tapering and a rebound in many key markets (such as Europe), some funds that are gaining traction. Many investors have flocked to these funds with confidence growing on various emerging nations.
These products provide huge diversification benefits among nations as well as companies. As such, the downturn in any of these nations would be offset by the positive economy of the other nation (read: 3 Emerging Market ETFs Still Going Strong).
Based on this, we have highlighted three large cap funds that could make for interesting picks in the tail end of the year. These are poised for a strong run heading into 2014, and especially so if emerging market sentiment continues to head in the right direction.
iShares MSCI Emerging Markets Minimum Volatility Index Fund (EEMV)
The fund provides exposure to low volatility stocks in the global emerging market space by tracking the MSCI Emerging Markets Minimum Volatility Index. It is by far the largest and most popular ETF with about $2.9 billion in AUM while volumes are pretty good. The fund charges 25 bps in fees and expenses.
With 220 holdings, the product allocates a small portion in each of the securities (less than 1.60%) that could keep the portfolio balanced among the various companies and prevent heavy concentration. From a sector look, financials dominate the fund, making up for 27.1% share alone in the basket. Taiwan (17.40%), China (13.3%) and South Korea (10.5%) are the top countries in terms of exposure.
Though the fund lost about 0.9% year-to-date, EEMV seems a decent choice for investors seeking to ride out the frequent bouts of volatility in the markets, and it is up about 4% in the past three months (read: Are Low Volatility ETFs Capable of Big Gains?).
The fund currently has a Zacks ETF Rank of 3 or ‘hold’ rating.
iShares Core MSCI Emerging Markets ETF (IEMG)
This fund tracks the MSCI Emerging Markets Investable Market Index. It is cheap, charging 0.18% in expenses, and has amassed $2.7 billion in AUM, while volume is also quite solid.
The fund holds over 1,760 securities in its basket with the highest allocation going towards Samsung Electronics (3.4%) and Taiwan Semiconductor (2.1%). Here too, financials is the top sector with one-fourth share (see more in the Zacks ETF Center). In terms of country allocations, China is at the top (17.3%), followed by South Korea (16.1%), Taiwan (12.5%) and Brazil (10.9%).
The fund is down 4.7% in the year-to-date timeframe, but it is up 7.4% in the trailing three months.
iShares MSCI Frontier 100 ETF (FM)
This ETF follows the MSCI Frontier Markets Index, holding 103 stocks in the basket. It has accumulated $333 million so far, and charges 79 bps in annual fees from investors. It is relatively less liquid compared to the other two products.
The top three holdings in the fund collectively make up about 16% of assets while other securities do not hold more than 3.72% each. Financials again dominates in terms of sector exposure, accounting for a whopping 55.8% of the total assets, while telecoms (14.1%) and industrials (11.5%) round out the top three.
From a country perspective, Kuwait (26.2%), Qatar (17.7%) and United Arab Emirates (14.6%) occupy the top three spots (read: Three Country ETFs Struggling in 2013). The fund has generated a healthy return of nearly 15.3% in the year-to-date period, though its three month return is just over 3%.
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