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ETF News And Commentary

The appeal for investing in emerging markets has returned this year thanks to elections hopes across a number of countries. Funds like Vanguard FTSE Emerging Markets ETF (VWO) and iShares MSCI Emerging Markets ETF (EEM), which dominate the asset base for the emerging world, have delivered handsome returns in the year-to-date time frame (read: 3 Top Performing Emerging Market ETFs).

The emerging Asia-Pacific space remains a top performer, with the ride being smooth for funds targeting nations like India, the Philippines, Thailand, and Vietnam. Indonesian funds have also seen a big jump this year and are on track to outstrip the other nations given that the country’s presidential election is just a day away.

This is especially true as hopes for the new government to turn around the beleaguered economy are attracting more foreign capital into the country. The final exit poll in the weekend shows victory for Joko Widodo in a presidential race on July 9 amid tough competition from Prabowo Subianto.

Exit Poll Spreads Optimism  

Popularly known as "Jokowi", Widodo is famous as the governor of the Indonesian capital Jakarta and has an impressive track record (read: Indonesia ETFs Soaring on Political Hopes).

The front-runner has promised to build a clean government and adopt market-friendly policies to revive growth in Southeast Asia's largest economy. Introducing various education and health programs as well as expanding infrastructure would be his priorities, if elected. This would encourage investments and jobs in Indonesia. Jokowi is also looking to relax the nation's reliance on Australian cattle imports, curb corruption and reduce income inequality in the country.

The final exit poll has propelled the Jakarta stock market rally to the biggest gain in three months on Monday trading session while the currency - rupiah – climbed to the highest level since late May against the greenback.

That being said, many investors want to take a look to the ETFs targeting this nation. Below, we have highlighted three Indonesian ETFs that offer strong capital appreciation opportunities, especially if Jokowi wins the presidential election. Moreover, the trio has a favorable ETF Rank of 3 or ‘Hold’ rating, suggesting room for upside in the coming weeks and months (see: all the Emerging Asia Pacific ETFs here).

iShares MSCI Indonesia Investable Market Index Fund ((EIDO - ETF report))

This is the most popular ETF tracking the Indonesian market with AUM of $488.3 million and average daily volume of nearly 605,000 shares. The fund tracks the MSCI Indonesia Investable Market Index, holding 106 securities in its basket while charging 62 bps in annual fees from investors.

The product is somewhat concentrated across both sectors and securities. The top two firms account for nearly 10% of the total assets while from a sector look, financials dominates the fund’s return with one-third share. Though the fund provides exposure to multi caps, it puts more focus on large caps at 83%.

EIDO gained 4.18% on Monday trading session and 23.4% in the year-to-date time frame.

Market Vectors Indonesia ETF ((IDX - ETF report))

Though this product has a bit less in AUM than EIDO, it is still quite popular with roughly 221,000 shares exchanging hands on a daily basis. The ETF follows the Market Vectors Indonesia Index, holding a basket of about 52 companies that are based in or do most of their business in the Southeast Asian nation (read: Inside the Indonesia ETF Turnaround).

The product puts more than 54.2% of total assets in top 10 holdings, suggesting moderate concentration. Additionally, large caps are pretty prevalent, as these make up for 90% of assets, leaving a tad for small and mid cap stocks. With respect to sector holdings, financials again takes the largest share at 31.4%, closely followed by consumer staples (15.7%) and consumer discretionary (14.7%).

The ETF charges 57 bps in fees per year from investors. The fund added 3.5% following the exit polls and 22% so far this year.

Market Vectors Indonesia Small-Cap ETF ((IDXJ - ETF report))

Unlike the other two, this is a small cap centric fund. It is unpopular and less liquid having AUM of $6.7 million and average daily volume of 21,000 shares. The fund tracks the Market Vectors Indonesia Small Cap Index while charges 61 bps in annual fees.

Holding 38 stocks, the product does a decent job of spreading out assets as each company holds less than 6.2% of the total. However, it is a bit concentrated from a sector look as financials takes the top spot at 41% while industrials and energy round off to the next two spots at 27.1% and 16.1%, respectively.

This fund sees the largest gain among the three, rising 5% on the day. It is up 18.2% in the year-to-date time frame.

Bottom Line

Investors should note that IDXJ might deliver higher returns than the other two products thanks to its true domestic exposure. While IDXJ would be a clear winner, the other two funds would also benefit from Joko Widodo’s growth reforms, if he wins the election.

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