With the debt ceiling issue in America and concerns over growth rates in other developed markets, many investors are looking to emerging market ETFs for better returns. These nations have become arguably better plays in the current market environment, as they have strong growth prospects and surging middle classes of their own (Forget China, Buy These Emerging Market ETFs Instead).
However, investors should also note that some of these emerging markets are highly susceptible to risk off selling or political issues. So, when these nations struggle to find their foothold, these dependent emerging markets tend to lose ground.
But not all emerging markets are prone to such a trend and provide investors with ample opportunities to grow their portfolios. Below, we highlight three country ETFs, namely, Turkey, India and Mexico, which have not disappointed investors and may continue with this trend going into 2013.
Turkey turned out to be the best performing emerging market in Europe in 2012. Thanks to its improved credit rating, low employment rate, solid banking system and government reforms, it could prove to be the best investment market in Europe for years to come (3 Emerging Market ETFs Protected from Global Events).
The region has good medium-term growth prospects and a diverse economy. The region’s debt-to-GDP ratio stands at 42.4%, much lower than the debt-to-GDP ratio of many developed economies which hover around 100%. So the issue of deleveraging is not a matter of concern for the country.
The only issue that should concern investors interested in Turkey is its geopolitical risk thanks to some seriously unstable neighbors.
iShares MSCI Turkey Index (TUR) – an ETF tracking the region – has been a solid performer in 2012. It delivered a return of 69% in the trailing one year period.
The fund manages an asset base of over $750 million which it invests in a portfolio of 98 stocks (Time to Stuff the Turkey ETF into Your Portfolio?).
The fund’s performance is more than 50% dependent on Financials which has been one of the best performing sectors of the region. Other than this, Industrials and Consumer Staples also enjoy double-digit allocation.
It is not a diversified product even in terms of individual holdings and more than 60% of the asset base goes towards the top ten holdings. The fund charges a fee of 59 basis points from investors.
Despite a not-too-impressive growth estimate for the region, India still remains on the radar when it comes to emerging market ETF investing. India’s economic growth is not highly dependent on exports to developed countries and relies more on domestic demand.
Investors should also note that foreign direct investment (FDI) would play a very important role in the capital market of the country. The Indian government’s initiative to bring in FDI to multi-brand retail can provide a boost to the economy (India ETFs: Getting Back On Track?).
iShares India 50 ETF (INDY) providing exposure to 51 large cap stocks of India jumped 21% in the last 52 weeks. The fact that the country is not dependent on exports to the U.S. or Europe has helped it to avert any major economic disaster, and could assist the country in the future if more issues crop up.
The fund manages an asset base of $353.1 million and is largely dependent on Banks and Computer Software for its performance. Top ten holdings also play a major role in its performance as more than 55% of the asset base is invested in them. The fund appears to be a bit expensive charging investors a fee of 92 basis points.
Attributable to strong fundamentals, the Mexican economy beats even Brazil in terms of the biggest economy of Latin America. Its competitive manufacturing cost, open economy, and low debt level at both private and public sectors make it well poised for future growth.
Also, its banking sector appears to be strong, thanks in part to a low level of debt (Best Latin America ETFs for 2013 (Part I): Mexico).
Recently, Mexico issued new labor reforms which are expected to resolve the issues related to widespread underemployment and dwindling job creation. With these reforms and strong fundamentals, the country is expected to grow at higher levels going forward.
iShares MSCI Mexico Investable Market Index (EWW), which taps the Mexican economy, climbed 32% in the trailing one year period. The fund offers a concentrated play in Mexican stocks with almost 70% of the asset base in the top ten holdings.
The fund invests its $1.9 billion asset base in a portfolio of 46 stocks and charges investors a fee of 52 basis points.
Among sectors, Consumer Staples, Telecommunication Materials and Financials influence the performance of the ETF with a double-digit allocation.
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