ETF Spotlight: IndexIQ Mid-Cap Emerging Markets

April 10th at 7:00am by Tom Lydon

ETF Spotlight on IQ Emerging Markets Mid Cap ETF (NYSEArca: EMER), part of an ongoing series.

Assets: $1.7 million.

Objective: The IQ Emerging Markets Mid Cap ETF tries to reflect the performance of the IQ Emerging Markets Mid Cap Index, which tracks the overall performance of the mid-cap sector of publicly traded companies listed in emerging market regions in less developed of the Americas, Europe, Asia and Africa/Middle East.

Holdings: Top holdings include: Brazilian Real 2.0%, Taiwan Dollar 1.7%, Hiwin Technologies Corp 1.2%, Taishin Financial Holding 1.2% and Pou Chen Corp 1.0%.

What You Should Know:

  • IndexIQ sponsors the fund.
  • EMER has an expense ratio of 0.75%.
  • The fund holds 185 securities.
  • Sector allocations as of 12/31/2011 include: consumer discretionary 18.0%, financials 17.6%, industrials 15.2%, materials 13.2%, technology 9.3%, consumer staples 7.7%, health care 6.7%, transportation 6.4%, utilities 3.1% and energy 1.9%.
  • country allocations as of 12/31/2011 include: Taiwan 23.3%, South Africa 15.0%, South Korea 13.6%, China 8.6%, Brazil 8.1%, Malaysia 6.1%, Thailand 4.7%, Indonesia 4.0%, Mexico 4.0%, Philippines 3.2%, Chile 2.8%, India 2.3%, Turkey 2.3%, Poland 1.3%, Hungary 0.5%, Egypt 0.5% and Russia 0.4%.
  • The ETF is up 0.8% over the past month, up 16.1% over the last three months and up 19% year-to-date.
  • EMER is currently trading above its 50-day exponential moving average.
  • “The main thesis for investing in international equities is for diversification benefits, and mid-cap foreign stocks achieve this goal admirably,” according to Morningstar analyst Patricia Oey. “These companies are more exposed to local economies and customers, relative to large caps.”
  • “We think a mid-cap emerging-markets fund might provide slightly better diversification benefits for a U.S. investor, relative to a comparable broad-market emerging-markets fund,” Oey added.
  • It should be noted that the fund does not hedge is currency risks, and investors will be exposed to changes in the Forex market.

The Latest News:

  • According to an Index IQ research note, the Emerging Markets saw a huge turnaround in the first quarter.
  • While investment interest in emerging market ETFs are back up, investors are largely unaware that most emerging market-focused ETFs are weighted toward large-cap stocks, which make them more correlated with broad global equity performances. [ETF Spotlight: Vanguard Emerging Markets]
  • Investors who want to gain exposure to the true growth patterns in the emerging markets may want to consider emerging market mid-cap stocks, the note said. [Emerging Market ETFs Capture the Next ‘Engine of Growth’]
  • In March, emerging market ETFs lost around 3%, according to MarketWatch.
  • “March data revealed that inflows have begun to deteriorate gradually in recent weeks, suggesting that the global economic recovery remains on fragile ground, eroding confidence among investors,” Nick Chamie, global head of emerging markets research at RBC, said in a research note.
  • Nevertheless, data from EPFR Global reveals that emerging market equity funds attracted $25.6 billion for the first quarter.
  • “Emerging markets sold off more than expected in 2011 and investors are generally underweight GEM [global emerging markets],” Allan Conway, head of emerging markets equities for Schroders, said in the MarketWatch article. So emerging markets are “well placed to rebound strongly and continue to outperform their developed peers.”

IQ Emerging Markets Mid Cap ETF

For past stories in this series, visit our ETF Spotlight category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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