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As American markets continue to struggle thanks to a number of political issues and growth concerns, many investors have looked beyond U.S. shores to potentially better investment opportunities. Yet with Europe still questionable and major emerging markets like China struggling, some have turned to smaller—and often overlooked—markets in other regions of the world for growth in these uncertain times.

This has turned out to be a great decision as some markets in Latin America and Southeast Asia are still chugging along despite the developed market concerns and some weakness in the few trillion dollar economies that are in the developing world. In particular, one country has stands out for both its strong economy and for how little most American investors know about the nation; the Philippines.

Philippines in Focus

The island nation of about 95 million people has been crushing the competition so far this year with its market greatly outperforming broad emerging market benchmarks in the year-to-date period. A number of trends have been responsible for this continued surge in the market both from a domestic perspective and in terms of exports as well.

The relatively undeveloped country has become a favorite destination of firms looking for cheap outsourcing in a country with a large and young population where English is a popular language. This segment, along with the electronics, automotive, and aerospace sectors, has combined with a weak peso to give the country a more optimistic consumer (read 3 Emerging Market ETFs Protected from Global Events).

In fact, the Philippines, according to Nielsen, recently came in second place for a global consumer confidence survey, just being edged out by Asian emerging markets India and Indonesia. Meanwhile a recent interest rate cut could also help to spur growth and keep the peso at a reasonable level in the future, suggesting that as long as inflation stays under control, the country’s economic condition could continue to improve.

The weaker currency and the strong diversity of manufacturing in the country has also helped the Philippines to become a stronger exporter, a pretty remarkable feat considering the developed market woes at this time. Recent reports showed that September  exports were 22.8% higher in dollar terms than in the year ago period, while month-over-month, they increased by 26% (see Buy These Emerging Asia ETFs to Beat China, India).

"The country's merchandise exports growth momentum remains robust despite significant threat posed by the crisis in the Euro area and lethargic state of the US economy," Trade Undersecretary Cristino Panlilio said, suggesting that the often overlooked country has shown incredible resilience despite the broadly uncertain market around the globe.

Thanks to these positive trends in the economy, and a recent move by Moody’s to push the nation just one notch below investment grade, it could be time to look to the nation for investment.

How to Play

While the broad market is still small and few Philippines focused securities are traded in the U.S., investors still have an ETF option to target the country in diversified form; the iShares SMCI Philippines Investable market Index Fund (EPHE - ETF report).

This product, which tracks MSCI Philippines Investable Market Index, has been easily beating out broad emerging market ETFs like (EEM - ETF report) or (VWO - ETF report), thanks to some of the points highlighted above. EPHE is up more than 41% YTD while EEM and VWO both have added less than 16% on the year, while the one year look is even more favorable to EPHE, suggesting that the product has shown a decent history of strong outperformance.

Still, despite these gains, the ETF is relatively unpopular as just $150 million is invested in EPHE. However, the product does have solid volume over 150,000 shares a day so bid ask spreads look to be relatively tight for the fund, suggesting that total costs will not be much more than the fund’s stated 59 basis point expense ratio (read Three Overlooked Emerging Market ETFs).

Investors should also note that the fund has a pretty favorable sector breakdown, and unlike many emerging market ETFs, this one does not allocate a huge amount to financials. Instead, industrials take the top spot at 29%, followed by real estate (21%), financials (17%), and utilities (13%).

Additionally, the ETF is relatively spread out from an individual company look even though the fund has just 41 stocks in its basket. Top stocks include SM Investments (10%), Ayala Land (7.5%), and Philippine Long Distance Telephone (6.6%), while all of the top ten has at least 3.6% of assets.

So not only are the underlying fundamentals for the Philippines quite solid but the ETF represents a decent pick on its own as well. While it is true the product might not offer up much in the way of yield—just under 1%-- its performance has more than made up for that, especially when comparing it to broad emerging market ETFs in recent time frames (see Three Emerging Market ETFs to Limit BRIC Exposure).

Lastly, the fund also currently receives a favorable Zacks ETF Rank of 2 or ‘Buy’ so we are expecting it to continue to outperform over the next few months as well. Given all this, it could be time for more investors to take a closer look at this often overshadowed market, particularly if it can continue to surge higher even in the face of global economic woes and broad market uncertainty.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Follow @Eric Dutram on Twitter

Long VWO

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