As emerging countries “decouple,” emerging economies and related exchange traded funds (ETFs) may outpace the markets of bulkier developed countries.
It is clear that the emerging market is recovering faster than developed ones, according to ETF Grind. While developed markets are spurred by consumption, emerging markets are driven by investments. ETF Grind provides some funds that an investor may peruse so as to capitalize on the emerging markets over the next few years.
We should note, too, that there are many other ETFs that can provide similar exposure as the world decouples – this is merely a sampling:
- First Trust ISE Glb Engineering and Construction (FLM): up 12.2% year-to-date. The FLM includes firms that specialize in designing and building infrastructure products. It also includes big-margin engineering and design firms, and focus less on materials and equipment.
- iShares MSCI BRIC Index (BKF): up 53.4% year-to-date. Emerging market funds often include countries that may not decouple as easily, such as South Korea, Mexico and Poland. But BKF provides exposure to the four BRICs emerging markets.
- PowerShares Emerging Markets Infrastructure (PXR): up 55% year-to-date. PXR it invests almost exclusively in firms that build infrastructure, and not in companies that operate and maintain infrastructure. The fund includes emerging market leaders and a few Western companies.
- Claymore/Delta Global Shipping (SEA): up 32.7% year-to-date. SEA invests in companies within the global shipping industry.
- PowerShares DB Commodity Index Tracking (DBC): up 12.7% year-to-date. DBC invests in the six most traded commodities: crude oil, heating oil, aluminum, wheat, gold, and corn.
- iShares S&P Global Materials (MXI): up 30.5% year-to-date. MXI tracks globally active firms that deal in materials. The fund is heavily weighted toward firms situated in developed markets, but they are international conglomerates with operations in emerging markets.
- Emerging Global Shares DJEM Energy Titans (EEO): This brand new fund holds 40 energy firms in emerging markets. It is weighted toward Russian companies, which make up around one-third of the holdings.
- CurrencyShares Australian Dollar Trust (FXA): up 15% year-to-date. The Australian Dollar is a true “commodity currency” since its value is dependent the country’s natural resource exports.
- Market Vectors Agribusiness ETF (MOO): up 36.2% year-to-date. MOO invests in international agribusinesses.
- WisdomTree Dreyfus Emerging Currency (CEW): up 0.4% in the last week. CEW is new on the scene. It invests in a range of emerging market currencies that could appreciate against the U.S. dollar. It includes currencies such as the Chinese Yuan, Indian Rupee, Brazilian Real and South African Rand.
Emerging markets do have a higher risk profile than those of established foreign and U.S. markets, writes Jim Lowell for MarketWatch. But high inflows into emerging market ETFs warrants another look into this potentially lucrative area. Lowell provides the following areas of interest in the emerging markets:
Brazil. It is a viable and diversified economy that has also has good ties to the global economy.
- iShares MSCI Brazil Index (EWZ): up 64% year-to-date
- iShares MSCI South Korea (EWY): up 33.8% year-to-date
- iShares MSCI Taiwan Index (EWT): up 50.2% year-to-date
- PowerShares India (PIN): up 57.8% year-to-date
- iShares FTSE/Xinhua China 25 Index (FXI): up 35.9% year-to-date
In Emerging Europe, Russia could be played in relation to the price of oil.
- Market Vectors Russia ETF (RSX): up 97% year-to-date
Israel has strong industries in technology, biotech, and defense.
- iShares MSCI Israel Cap Invest Mkt Index (EIS): up 40.1% year-to-date
South Africa is noted for its metals and mining, or gold industry.
- iShares MSCI South Africa Index (EZA): up 27.6% year-to-date
Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.
For full disclosure, some of Tom Lydon’s clients own shares of MOO.
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. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.