It has been a tumultuous two-plus years for the iShares MSCI Philippines ETF (NYSEArca: EPHE).
In 2012, the Philippines seemingly came out of nowhere to grab investors’ attention as a credible candidate the next great Asian tiger story. That year, EPHE soared nearly 48%, thumping the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) by two and a half times, as curious investors embraced the Philippines favorable demographics, consumer-driven economy and sturdy government balance sheet. [A High-Growth, Low Debt Emerging Market]
EPHE’s good times continued into the early part of 2013 as credit ratings agencies rushed to upgrade Philippine sovereign debt to investment-grade status. However, a plummeting currency and fears regarding the Federal Reserve tapering its quantitative easing program would send EPHE to a 7.7% loss in 2013, more than twice as bad as EEM’s drop. [Philippines ETF Flounders]
In the second half of last year, investors pulled nearly $1 billion out of Philippine equities. This year has been trying for EPHE as well as markets all over the developing world, big and small, have been repudiated by investors. The 10 worst non-leveraged ETFs year-to-date are all emerging markets funds (EPHE is not on that list though it is down 1.9%) and there is no regional uniformity on that list. Funds from Asia, Eastern Europe and Latin America are represented. [BIITS ETFs Not Spurred by Rate Hikes]
The current environment is clearly toxic for emerging markets, but what is also clear is EPHE has been noticeably less bad than some other noteworthy emerging markets ETFs. That could be a sign that when the developing economies eventually get their collective acts together, EPHE will be a leader on the way up.
As it is, EPHE, even with its 1.9% loss this year, is soundly outperforming EEM and the comparable China and Malaysia ETFs. Investors looking for some shelter from the storm with ETFs tracking more conservative, lower beta emerging markets such as South Korea and Taiwan have been burned. The average loss for the iShares MSCI South Korea Capped ETF (NYSEArca: EWY) and the iShares MSCI Taiwan ETF (NYSEArca: EWT) is nearly triple that of EPHE.
Of course, there is a disclaimer. The Philippines is not 100% immune from the ills afflicting other developing markets. Stocks in Manila have risen in nine of the past 10 sessions, but that will not be enough to prevent EPHE from being a baby thrown out with the bathwater if the situation worsens for emerging equities.
Still, any near-term steadying of developing world bourses could shine a light on EPHE as one of the better ways to play an emerging markets bounce.
EPHE against rival Asia ETFs
Tom Lydon’s clients own shares of EEM.