Back to top

Image: Bigstock

Top and Flop EM ETFs as Taper Tantrum Completes 5 Years

Read MoreHide Full Article

This week, emerging market (EM) bloc completed its fifth anniversary of taper tantrum. Exactly five years ago, on May 22, 2013, the Fed announced its plans for tapering the pace of bond buying at the subsequent meetings.

Benchmark U.S. Treasury bond yields crossed the 2% mark then and the U.S. dollar gained strength. Emerging market investments were badly beaten down by talks of a Fed taper. iShares MSCI Emerging Markets ETF (EEM - Free Report) lost about 0.5% that year since May 22. Higher rates in the United States along with a stronger dollar dulled the appeal of emerging markets around the globe, leading many to sell their shares.

However, within these five years, the EM bloc has gained health despite the end of the QE policy in the United States, six rate hikes by the Fed since then and 7.6% gains in PowerShares DB US Dollar Bullish ETF (UUP - Free Report) . Broader emerging market ETF in fact has gained about 20.4% during this time frame.

The rally was prompted by accommodative developed market central banks that have kept interest rates low and drove investors toward the relatively high-yielding EM bloc. An overall boom in the global economy and commodity market strength also provided the wind under the wings (see all Broad Emerging Market ETFs here).

Is Taper Tantrum Back in 2018?

However, this year looks to be a repetition of 2013 taper tantrum. U.S. 10-Year Treasury bond yields crossed 3% in late April for the first time since January 2014. J.P. Morgan’s chief executive Jamie Dimon expects the benchmark bond yield to touch 4% (read: Is Taper Tantrum Back in 2018? EM ETFs in Focus).

But investors should note that though EMs underperform in a rising rate environment, the bloc has become a lot more insulated in recent times. Goldman Sachs believes that many emerging market economies have started showing developed market characteristics as inflation rates are declining and currency crisis is easing.

Low inflation rates have helped many EM central banks to adopt easy money policies, which in turn is facilitating growth (read: Are EM ETFs the New Definition of Developed Market Investing?).

Still, some country specific issues, dollar strength and the likelihood of a trade war are concerns for the EM space this year. These raise our apprehensions about the comeback of taper tantrum in the near term.

Against this backdrop, we highlight below some best and worst performing EM ETFs of the last five years (as of May 22, 2018). Investors should note that SPDR S&P 500 ETF (SPY - Free Report) added 81.5% returns in the past five years (as of May 22, 2018) and EEM was up 22.2%.

Best ETFs

First Trust Chindia ETF – Up 90.9%

The fund gives exposure to either India or China and whose shares or ADRs are listed on a U.S. securities exchange. Information Technology (41.1%), Consumer Discretionary (24.9%) and Financials (15%) form the top three sectors.

First Trust BICK Index Fund BICK – Up 33.0%

The fund gives exposure to Brazil, India, Mainland China and South Korea. Information Technology (22.6%), Consumer Discretionary (20.5%) and Financials (19.7%) are the top three sectors. Vedanta Resources (2.11%), MakeMyTrip Limited (2.10%) and WNS (Holdings) Limited (ADR) (2.04%) take the top three spots in the fund.

BLDRS Emerging Markets 50 ADR Index Fund – Up 25.8%

The fund is heavy on China (44.8%) while Brazil (17.1%) and Taiwan (13.8%) round out the next two spots. Information Technology (42.1%) and Financials (15.71%) are the top two sectors of the fund (read: 6 ETFs Gain on Alibaba Robust Earnings).

Worst ETFs

iShares MSCI Turkey ETF (TUR - Free Report) – Down 52.3%

The fund gives exposure to the Turkish market. Financials (32.3%), Industrials (17.8%), Materials (14.5%) and Consumer Staples (11.8%) take the top four spots (read: Turkey's Economic Crisis & a Closer Look at its ETF).

iShares MSCI Turkey ETF (GREK - Free Report) – Down 47.2%

The fund offers exposure to companies in Greece. Financials (29.3%), Energy (18.4%), Consumer Discretionary (18.1%) and Telecom (13.5%) are the top sectors of the fund.

Columbia EM Quality Dividend ETF Down 12.7%

Geographically, the fund has a double-digit exposure to China (15.87%), Taiwan (14.1%) and India (12.1%). Sector-wise, Financials (19.6%), Materials (14.0%), Energy (12.3%) and Real Estate (10%) have considerable focus on the fund.  

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>