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European events continue to dominate the headlines despite the relatively successful Greek election. As the small country looks to pick up the pieces of its economy and build for the future, the focus is shifting towards larger markets in the region.
Debt yields are now near 6% in Italy while rates on Spanish debt have crossed the dreaded seven percent mark, (although they have pulled back in recent days) leaving some analysts to question how long Spain can hold on before it asks for a bailout of its own financing situation (see Beyond Germany: Three European ETFs Tracking Strong Countries).
After all, it was roughly around this debt yield level that other EU countries sought help, suggesting that Spain may be slowly stumbling to this end as well. This is especially concerning as the Spanish economy is unlike many of the other bailed out members of the EU.
Spain is a trillion dollar economy and has unemployment of over 25% at this point, leaving the country in a tight bind in terms of policy moves that are available in terms of more spending cuts. Austerity will be a near impossible pill to swallow when so many are already unemployed, including nearly half of all workers in their early 20’s (read Spanish Bailout: Did It Help European ETFs?).
Thanks to these issues, broad European ETFs have been significantly beaten down as of late. EWP has lost more than 20% in the past three months while EWI has fallen by a similar figure. Even more troubling is that relatively strong countries like Germany are also suffering double-digit losses in the most recent quarter while broad European markets, as represented by EZU, are down about 15% in the past three month period.
These losses have also greatly impacted a number of developed markets around the world, erasing much of the gains that investors saw in the first few months of the year. In fact, not only are broad American markets down, but those following developed resource countries—like Australia and Canada—have seen losses in the 8%-12% range in the past three months as well (Read Pain In The Spain ETF Continues).
Unfortunately, pretty much every corner of the global economy has been negatively impacted by these European events and their tangential effects of a stronger dollar and weaker commodities. However, with that being said, a few smaller markets have managed to buck the trend and stay in the green from both a year-to-date and one year look, while only losing a tad in the most recent quarter.
While these economies are small, they may be less correlated and less dependent on broad developed market events, suggesting that they could be worth a look for those seeking a potentially low correlated high growth play at this time. For these investors, we have highlighted three country specific ETFs that are still strong performers despite the turmoil and thus may be worth a look at this time:
This ETF has added about 19% so far in 2012 and it has gained roughly 20% over the last 52 weeks. This comes from tracking the MSCI Philippines Investable Market Index which looks to give investors broad exposure to Philippine stocks (see Asia Ex-Japan ETF Investing 101).
Currently, the product has just over 40 securities in its basket giving the most exposure to industrials (28%), real estate (19%), and financials (18%).
With this focus it is clear that banks and similar institutions make up a big chunk of exposure yet the product has performed admirably so far this year. Apparently, the financial institutions in the Philippines are well insulated from any European shocks and are moving independently of troubles in Greece and Spain.
However, investors should note that the ETF is relatively top heavy in terms of holdings and that it does charge a fee of about 59 basis points a year. Furthermore, the tracking error on this ETF is somewhat high while the market can be quite volatile when confidence in emerging markets is tumbling.
GXG has been a top performer in the Latin America ETF world thanks to a nearly 16% gain in 2012 and a flat performance over the past 52 weeks. Additionally, it should be pointed out that GXG has doubled in the past three year period, crushing many of its country specific counterparts in the process.
The product has achieved this performance by following the FTSE Colombia 20 Index which is a benchmark of about 20 securities that trade in the nation of Colombia. Fees are somewhat high at 78 basis points a year, but volume is solid at nearly 130,000 shares per day, providing decent liquidity to most investors (see more on ETFs at the Zacks ETF Center).
In terms of holdings, the product has heavy exposure in just a few companies with the top two accounting for nearly one-quarter of the total. Beyond that, investors should also note that financials, energy, and basic materials combine to take up more than three-fourths of the total suggesting a heavy sector concentration although this has clearly paid off in years past.
Another solid performer in the face of the European crisis has been THD and Thailand. While the product has underperformed the other two in year-to-date terms, gaining about 15.2% in the time frame, it has added 13% over the past 52 weeks and has surged by over 123% in the previous three years.
This performance has been thanks to following the MSCI Thailand Investable Market Index which consists of about 80 securities in total. This produces an ETF that charges investors 59 basis points a year in fees but pays out a solid yield of just over 2.6% per year (see Southeast Asia ETF Investing 101).
Volume and AUM are also among the highest of any securities on this list, coming in at just over 270,000 shares trading on a daily basis and a total market cap of $640 million.
Holdings are also skewed towards financials, energy, and basic materials, which account for roughly 68% of the total exposure in the fund. However, the product does have a decent segment in consumer stocks, coming in at about 14% of the total.
Still, much like in the case of GXG, this has proven to be a winning technique and has helped investors see tremendous gains over the long haul, even despite the ongoing, and continually deteriorating, situation in the European market.
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