Emerging markets (EM) investing no longer seems a winning proposition now. The space had a stellar run in 2017, when the broader emerging market fund iShares MSCI Emerging Markets ETF (EEM - Free Report) returned about 35.6%, marking its best year since 2009, thanks to a subdued greenback and synchronized global growth.
While the segment was off to strong start in 2018, the momentum faded in the second quarter on talks of faster-than-expected Fed rate hikes. Policy tightening in the United States has always been a concern for the emerging market bloc. The common perception is that if the Fed tightens policies, the greenback will gain ground and the benchmark U.S. Treasury yields will start rising, which in turn will dull the appeal for EM equities.
This is because several emerging markets are hugely reliant on foreign capital to finance their external deficit and remain at risk with the Fed’s policy tightening. U.S. 10-Year Treasury bond yields crossed 3% in late April for the first time since January 2014.
The Fed has already enacted two hikes this year and two more are likely this year. The central bank also upgraded its forecast for 2018 U.S. real GDP growth from 2.7% in March to 2.8%. This should fuel the U.S. dollar in the coming days (read: Fed Turns Hawkish: ETF Areas to Win).
The ECB has also penciled its gradual exit from the QE policy by the end of this year. The withdrawal of support from the ECB and Fed invariably caused an upheaval in the EM space. Apart from the rising rate worry in the developed markets, trade tensions between China and the United States is another tension (read: Winning & Losing ETFs After ECB's Dovish Exit Plans From QE).
As a result, the $35 billion-fund EMM saw about $2.2 billion gushing out last week, the maximum since 2014. Vanguard FTSE Emerging Markets ETF (VWO - Free Report) lost about $270.5 million in assets in the week ended Jun 16. As much as a $19 billion exodus has been seen from India, Indonesia, the Philippines, South Korea, Taiwan and Thailand so far this year, per Bloomberg (read: Is Taper Tantrum Back in 2018? EM ETFs in Focus).
ETFs That Were Least Hurt in Last One Month
While there has been a blow to the broad-based EM space, the below-mentioned ETFs have lost the least in the past month (as of Jun 18, 2018) when compared with EEM (down 3.0%).
KraneShares Emerging Markets Consumer Tech ETF (KEMQ - Free Report) – Up 2.43%
The underlying index of the fund is composed of the equity securities of the 50 large companies that are headquartered in emerging market countries. Information Technology (62.4%) and Consumer Discretionary (30.7%) are the top two sectors. No stock accounts for more than 3.68% of the fund.
Columbia Emerging Markets Consumer ETF (ECON - Free Report) – Up 0.72%
The fund measures the performance of 30 leading emerging market companies in the Consumer Goods and Consumer Services Industries. China takes about 28.2% of the fund, followed by India (14.7%), South Africa (14.15%) and Brazil (12.64%). Discretionary takes about 52.77% of the fund while Staples has about 44.37% exposure.
KraneShares FTSE Emerging Mkts Plus ETF – Up 0.50%
It is a GDP-weighted fund which includes China A shares and China N shares. Financials and Technology are the top sectors of the fund. The fund charges 72 bps in fees.
Invesco PureBeta FTSE Emerging Mkts ETF (PBEE - Free Report) – Down 0.8%
The fund measures the performance of large and mid-capitalization emerging market countries. Information Technology (23.99%), Financials (23.79%) and Consumer Discretionary (9.08%) take the top three spots in the fund. China (36.57%), Taiwan (12.87%) and India (11.12%) are the top three countries of the fund, which charges 14 bps in fees.
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