Emerging market exchange traded funds (ETFs) have been one of the year’s hottest stories. Looking ahead to the new year, some analysts see no signs of a momentum slowdown.
In fact, to reap rewards next year, investors would be wise to look at companies with robust businesses in emerging markets.
Take Yum! Brands (NYSE: YUM), which operates chains like KFC, Pizza Hut and Taco Bell. The fast-food purveyor continues to reap higher profits from its emerging market exposure; profits from China alone are growing 30% annually, comments Daniel Fisher for Forbes.
Not convinced? Then here’s more fast food for thought:
- On the S&P 500, emerging markets now make up 13% of overall U.S. corporate earnings. Europe adds another 17%.
- The 28 largest S&P 500 multinationals experienced a 14% increase in revenue for operations outside of North America in the six years through 2008, compared to 6.2% in North America. Mostly basic-materials, industrial and technology companies see higher consumption abroad. [Consumer ETFs Get a Lift from Emerging Markets.]
- At 3M (NYSE: MMM), sales to Asia and Latin America now account for one-third of this year’s total, up from 16% a little more than a decade ago.
- Qualcomm (NASDAQ: QCOM) and Advanced Micro Devices (NYSE: AMD) say that a respective 94% and 87% of their sales are overseas.
If the middle class growth story in emerging markets continues to be told, it might be time to look not only at straight emerging market ETFs, but at other types of ETFs that hold companies that have branched out overseas and been met with success, such as:
- PowerShares Dynamic Food & Beverage (NYSEArca: PBJ) has the largest weighting of Yum! Brands, which comes in at 5%. McDonald’s (NYSEArca: MCD) also has a large overseas presence and a 5% weighting in PBJ. Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP) and Papa John’s (NYSE: PZZA) also have significant weightings in PBJ.
- iShares Goldman Sachs Networking (NYSEArca: IGN) gives a hefty 9.8% of its weighting to QualComm, while SPDR S&P Semiconductor (NYSEArca: XSD) holds 4% of Advanced Micro Devices.
To find other ETFs that own these companies, check out our ETF Resume, where you can drill down into the top holdings of most ETFs.
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.