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With broad economic fears declining and the fiscal cliff averted, 2013 began on a positive note, producing investor confidence in the markets. Many opted for risky assets in order to obtain higher returns. While equities have experienced a heavy inflow of funds ever since 2000, some ETFs even rallied to break the resistance level and set new highs.
The first month of the year was pretty impressive with quite a few ETFs experiencing heavy ETF inflows and posting double-digit gains. Moreover, better economic data fuelled the positive sentiment in the market (Best ETFs to Start 2013).
Extending the strong rally experienced in January, the month of February also started on a positive note with ETFs gaining momentum. However, it seems that some level of volatility has emerged in the market in the last few days of the month.
VIX, the indicator of market direction, has been in record low territory for the last several months and the markets have continued a spectacular run higher. But in the Monday trading session it went for its much awaited rally, signalling that a pullback might be possible in the S&P 500 (Which Volatility Hedged ETF Should You Consider?).
In hindsight, February evoked mixed sentiments, starting strongly but finishing on a choppy note. In such a scenario, we would like to highlight a few ETFs which have been star performers of the month and some others that have turned out to be major disappointments.
Among all the ETFs which have lured investors this month, the Market Vectors Indonesia Small-Cap ETF (IDXJ) particularly stands out, recording an impressive year-to-date gain of 22%. In February alone it earned a gain of 10.2%. After a dismal performance in 2012, the recovery in the New Year has been striking.
As the name suggests, the recently launched IDXJ offers a targeted exposure to the small cap segment of the Indonesian market thereby providing a better opportunity to tap domestic growth (Van Eck Launches Indonesia Small Cap ETF (IDXJ - ETF report)).
IDXJ manages an asset base of $4.4 million and provides exposure to 25 small cap securities of Indonesia. The fund charges an expense ratio of 61 basis points annually.
The ETFappears to be concentrated in the top ten holdings as it allocates a hefty 61.1% of asset base to them. Among sector allocations, Financials dominates the list with a 40.9% share while Industrials and Consumer Staples get the next two positions sharing 28.1% and 12.7% of the asset base, respectively.
The Indonesian economy, the biggest in Southeast Asia, appears to be poised for good growth in 2013 attributable to healthy domestic consumption, good investment climate and more infrastructure development. Low inflation and interest rates should also support economic growth (Can Indonesia ETFs Rebound in 2013?).
The biggest drag on the economy in 2012 was declining exports to weaker developed markets. However, in 2013, the growth of the economy is expected to be supported by both strong domestic consumption and some recovery in export demand. Political uncertainty related to elections still remains a matter of concern.
Another ETF counted among the best performing ETFs of February is MSCI Philippines Investable Market Index Fund (EPHE). The performance of the ETF has been quite remarkable. The fund has gained an impressive 15.7% in the year-to-date period while in February alone it recorded a gain of 7.41%.
Currently, the product has just over 42 securities in its basket. The maximum sector exposure is to Financials (42.6%), Industrials (24.1%), and Utilities (9.9%).
Investors should note that the fund is concentrated in the top 10 holdings with more than 55% of investment. Among individual holdings, SM Investments Corp, Ayala Land and SM Prime Holdings take the top three positions with 10.3%, 8.28% and 6.19%, respectively, of EPHE’s assets. The fund charges an expense ratio of 60 basis points (Top Ranked Philippines ETF in Focus: EPHE).
The Philippines has been one of the very strong performers among the emerging markets and still appears to be well poised for further growth. The government expects to sustain the growth momentum in 2013 through public-private partnerships for infrastructure investments.
For 2013, the improvement in the growth rate could also be accompanied by a low level of inflation. Lower inflation will allow interest rates to remain low thereby leading to a positive business environment.
Further, the manufacturing and construction sector of the economy appears to be well poised for growth this year. The economy also seems to benefit from tourism and the strength in its consumer and service sector.
The gold mining industry has been underperforming for quite some time. Rising production cost, pressured margins, over-budget projects and money-losing multibillion-dollar takeovers led to the dreadful situation in the industry (Time to Buy Junior Gold Mining ETFs?).
For many years, the companies in the industry are running low on returns mainly caused by dilution that has resulted from issuance of new equity to finance acquisitions and reinvestment in marginal projects.
In such a scenario, ETFs tracking the industry are the least preferred choices among investor incurring double-digit losses. Proving this point, GLDX turned out to be the worst performing ETF in the month.
The fund has around 56% of the asset base invested in the top ten holdings. Among individual holdings, Torex Gold Resources, Continental Gold and NewStrike Capital occupy the top three positions. The ETF charges a fee of 65 basis points annually.
Another ETF which disappointed investors with its weak performance in the month was (EWI - ETF report). The deadlocked elections in Italy led to a sharp fall in price of the ETF. EWI plunged 12.4% in February (Italy ETF Plunges on Election Chaos).
The fund with more than 1 million shares in volume manages an asset base of $549 million. EWI provides exposure to a small basket of 26 stocks and charges a fee of 51 basis points annually.
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