Call it a reversion or rotation trade or any other fancy Wall Street Jargon, but the fact is emerging markets equities and exchange have recently been thumping their U.S. counterparts.
Sure, it is just five days, but over that time the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) are each up nearly 3% while the S&P 500 is off 2% over the same period. This could be the start of something because institutional money is only incrementally returning to marquee emerging markets ETFs, indicating that larger flows, should they arrive, could boost select ETFs even more. [Not the Time to Sell EM ETFs]
“While we have not seen convincing evidence via ETF flows that institutional portfolio managers are pouring back into Emerging Markets based ETFs (yet), with modest to non-existent weekly flows in important/benchmark ETFs in the space,” said Street One Financial Vice President Paul Weisbruch said in an email to ETF Trends.
Catalysts for the recent emerging markets rally include Brazil, Latin America’s largest economy. The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) is up 7% in the past week and with the benefit of Thursday’s 4.7% gain (at this writing), the ETF looks poised to close above its 200-day moving average for the first time since November 2013. [Brazil ETFs Survive S&P Downgrade]
“The generic ‘U.S. is the nicest house in a bad neighborhood’ mantra that was passed around for the past year or two simply isn’t holding this week in equities,” said Weisbruch in a note out Thursday morning.
Weisbruch notes even risk-tolerant traders may be overlooking opportunities with previously unheralded leveraged emerging markets ETFs. The Direxion Daily Russia Bull 3x Shares (NYSEArca: RUSL) is higher by nearly 13% since March 20. [White House the Wrong Place for ETF Advice]