The Potential of Emerging Market ETFs | ETF Trends

While developed economies are just barely eking out growth, emerging market exchange traded funds (ETFs) have produced some phenomenal growth. Is this “the new normal”?

International-stock funds increased by 16% on average in the third quarter, with emerging markets experiencing returns of 19%, compared to the 12% in returns for U.S. funds, reports Sam Mamudi for The Wall Street Journal. Douglas Cairns, emerging markets equities investment specialist at Threadneedle Asset Management in London, said that emerging markets “have better prospects for structural growth, more positive demographic trends, and their banks are fine.” [BRIC ETFs Hot, Developed Markets Not.]

However, “there’s always the chance that if the world gets risk-averse, then investors will pull out of emerging markets,” remarks Urban Larson, director of emerging equities for U.K. money manager F&C Management Ltd. Additionally, investors need to watch out for problems in developed markets that could lead to drop in demand for emerging market exports. [Investing in the Last Frontier With Africa ETFs.]

Emerging economies top the chart for gains year-to-date, with Indonesia, Chile, the Philippines, Thailand and Peru leading the pack, writes Josh Lipton for Minyanville. Dr. Ed Yardeni of Yardeni Research believes that global investors are betting on country plays for fast-rising commodity prices or speculators are reacting to potential increases in money supply by the Fed.

  • Market Vectors Indonesia (NYSEArca: IDX)
  • iShares MSCI Chile (NYSEArca: ECH)
  • iShares MSCI Philippines (NYSEArca: EPHE)
  • iShares MSCI Peru (NYSEArca: EPU)
  • iShares MSCI Thailand (NYSEArca: THD)

Richard Kang of Emerging Global Advisors commented on how spending by the younger demographic in the emerging markets is keeping the global economy afloat, writes Olivier Ludwig for IndexUniverse. As the middle class develops in emerging markets, emerging market consumers will begin to have even more money.

Investors seeking to invest in the emerging markets may utilize ETFs since beta selection, beta bias and beta timing are the appropriate tools to use in times when the normal approach to investing doesn’t pan out, which is the case in emerging markets that don’t lay all the information at one’s feet, Kang remarks.

For more information on the emerging markets, visit our emerging markets category. When it comes to emerging market ETFs, you have numerous choices. They include broad funds listed below, along with regional and single-country funds (such as those listed above). Choose according to the level of risk you’re comfortable with.

  • iShares MSCI Emerging Index Fund (NYSEArca: EEM)
  • Vanguard Emerging Markets ETF (NYSEARca: VWO)
  • SPDR S&P Emerging Markets ETF (NYSEArca: GMM)

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.