Given the stellar performance of emerging markets this year – some are up nearly 100% off the market’s March 9 low – it’s no real shock that exchange traded fund (ETF) providers are lining up to capitalize on the trend.
ETF providers are saddling up and preparing for an emerging markets ride, but is it too much, too soon? Some observers think that it’s a sign that the party is just about over. David Hoffman for InvestmentNews says that analysts feel many of the emerging-markets ETFs in the pipeline are too narrowly focused on individual countries and their sectors. (Other new ETFs that have launched.)
Newer offerings from the following:
- Global X recently filed a prospectus to introduce ETFs targeting six Chinese industries: consumer goods, financials, energy, industrials, materials and technology. The consumer and industrial ETFs will launch tomorrow.
- Emerging Global Advisors is coming out with seven infrastructure and mid-cap index funds focusing on Brazil, China and India, which are in registration. The provider also has a line of broad emerging market sector funds. (Read about their funds here).
The success of emerging markets and their related ETFs have no doubt fueled this trend, but investors should note that it doesn’t automatically spell success. Investors should do their due diligence and research before investing and consider things like weightings, cost, fundamentals and lastly, the trend lines. We use the 200-day moving average to determine when we get in and when we exit. (How emerging markets are defined).
Emerging Global Advisors CIO Richard Kang says that if the emerging markets story is a short-term one, then they and other emerging markets-focused fund managers that pop up within the next year could likely be return-chasers and bandwagon-jumpers.
But, Kang notes, if the story is a long-term one, there will likely be more emerging market-focused managers appearing on the scene. “I believe the emerging market story will be with us for awhile,” Kang says. “And more product providers will appear in the space just like we see now.”
These providers are simply trying to meet market demand for new ways to play emerging markets. This also fosters a healthy competition within the industry and keeps things fair. Having a range of options is never a bad thing for investors.
Has the proliferation of emerging market ETFs caused a bubble? That remains to be seen, but investors can protect themselves from bubbles by having (and using) a pre-set exit strategy. (Is there a bubble?)
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.