Emerging markets, which were the worst hit by slowing economic growth, China turmoil and the prospect of higher interest rates in the U.S., seem to have been rebounding in recent weeks.
This is especially true as the two most popular ETFs – iShares MSCI Emerging Markets ETF (EEM - Free Report) and Vanguard FTSE Emerging Markets ETF (VWO - Free Report) – climbed over 5% in the past five days against gains of 3.4% for iShares MSCI ACWI ETF (ACWI - Free Report) and 3% for SPDR S&P 500 (SPY - Free Report) , suggesting that the worst might be over.
Impressive gains came on the back of stabilization in commodity prices, hopes of additional stimulus from central banks from Asia to Europe, and China’s latest step to arrest the slowdown that led to some gains in emerging market currencies. Additionally, investors’ lack of hope for a rate hike anytime soon fueled the rally in the stocks (read: ETFs to Gain from China's Added Stimulus).
Further, data from the Institute of International Finance, which showed that capital flows into emerging markets turned flat in February after seven straight months of outflows, injected fresh optimism into the emerging markets. Notably, net emerging market outflows decreased to $200 million last month, with Latin America pulling in the maximum capital of $2.7 billion, followed by inflows of $1.7 billion in Africa and the Middle East, $1.5 billion in Europe and $300 million in Asia.
Apart from positive developments, low valuations made these stocks tempting. As a result, several emerging market ETFs performed remarkably well over the past five days. Of those, we have highlighted the ones that emerged as the true winners of this short-covering rally (read: 4 EM ETFs that are Still in Green this Year).
PowerShares FTSE RAFI Emerging Markets Portfolio (PXH - Free Report) – Up 6.4%
This ETF follows the FTSE RAFI Emerging Markets Index and offers exposure to the largest emerging market stocks based on four fundamental measures – book value, cash flow, sales and dividends. Holding 336 securities in its basket, the fund allocates no more than 3.4% in a single security. Financials (31%) and energy (22.6%) take the top two spots. In terms of country holdings, about one-fourth of the portfolio goes to Chinese firms while Taiwan, Brazil, and Russia round off the next three spots with a double-digit exposure each.
The fund has amassed $282.1 million in its asset base, and trades in a good volume of around 265,000 shares a day. It charges 49 bps in annual fees from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
iShares MSCI BRIC ETF (BKF - Free Report) – Up 5.7%
This fund targets the four BRIC countries with highest exposure of 57.1% in China, 19.6% in India, 13.7% in Brazil and the rest in Russia. It tracks the MSCI BRIC Index and holds 308 stocks in its portfolio. However, it is skewed toward the top firm - Tencent Holdings – at 6.82%. Other firms hold no more than 4.84% of assets. In terms of sector exposure, financials dominates the fund return with 30% of the portfolio, followed by information technology (18.4%) and energy (12.4%).
The fund has accumulated $154.9 million in AUM and trades in a lower volume of 21,000 shares per day on average. It charges 72 bps in expense ratio and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a Medium risk outlook (see: all Broad Emerging Market ETFs here).
EGShares Emerging Market Consumer ETF (ECON - Free Report) – Up 5.5%
This ETF targets the consumer sector of the emerging markets by tracking the Dow Jones Emerging Markets Consumer Titans 30 Index. It holds 30 stocks in its basket with heavy concentration on the top firm – Naspers – at 10.3%. The other firms hold less than 5.7% share. From a country look, South Africa occupies the top position with one-fourth portfolio while China and Mexico round off the top three with over 16% share.
The fund has amassed $549.6 million in its asset base and sees solid average trading volume of more than 352,000 shares. Expense ratio comes in at 0.83%.
Schwab Emerging Markets Equity ETF (SCHE - Free Report) – Up 5.5%
This fund tracks the FTSE Emerging Index, holding 776 stocks in its basket. None of the securities accounts for more than 4% of total assets. The product is slightly tilted toward financials at 25%, closely followed by technology (14%) and energy (8%). Here again, China takes the top spot at 26.5% while Taiwan and India receive a double-digit allocation each.
SCHE is one of the popular and liquid options in the emerging market space with AUM of $1.5 billion and average daily volume of 848,000 shares. It charges 14 bps in fees per year from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS - Free Report) – Up 5.5%
This fund follows the NASDAQ AlphaDEX Emerging Markets Small Cap Index and targets the small cap segment of the emerging market space. Holding 206 securities, the fund is well spread out across each component as each security holds less than 1.5% share. Taiwanese firms take the top spot at nearly 24.2%, closely followed by China (18.2%) and Brazil (12.4%). From a sector look, about one-fifth of the portfolio is allocated to information technology while financials, industrials, and consumer discretionary round off the next three spots with a double-digit allocation each (read: Small Cap ETFs Leading Current Market Rally).
The product is often overlooked by investors, as depicted by AUM of $36.3 million and average daily volume of roughly 22,000 shares. The expense ratio comes in higher at 0.80%.
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