Exchange traded funds that invest in the stocks and currencies of individual countries are gaining in popularity as investors turn to ETFs for specific trades or to hedge risk in their portfolios.
There are 139 ETFs specializing in non-U.S. equity markets or currency of a single country. That represents 11% of all ETFs, or $77.4 billion in assets, says Nicholas Colas, chief market strategist at ConvergEx Group.
These single-country funds “fulfill a key role in giving investors options for targeted exposure to a specific economy and/or currency while preserving the transparency and fee structures that make ETFs popular with institutional and retail investors,” he wrote in a recent note.
“And, in the context of trying to understand investor money flows, they give a very granular perspective on where investors think they have found winning trades,” Colas added.
Single-country funds are growing “far faster” than the average ETF in 2011. “Essentially, 7% of ETFs (single-country) are responsible for 15% of all new money into U.S.-listed products thus far in 2011,” he said.
The top-selling ETF in the category this year is iShares MSCI Japan (NYSEArca: EWJ), while related funds such as WisdomTree Japan Total Dividend (NYSEArca: DXJ), ProShares UltraShort Yen (NYSEArca: YCS) and WisdomTree Japan Small Cap (NYSEArca: DFJ) have also been popular, according to ConvergEx.
After the earthquake and tsunami, “ETF investors clearly think the reconstruction of Japan is an important investable theme,” Colas remarked.
Other single-country stock ETFs seeing solid inflows this year “fit much more neatly into a conventional thematic investment approach: Buy export-driven and/or natural resource haven countries,” the strategist noted.
Examples include iShares MSCI Germany (NYSEArca: EWG), iShares MSCI Brazil (NYSEArca: EWZ), iShares MSCI Canada (NYSEArca: EWC), Market Vectors Russia (NYSEArca: RSX) and iShares South Korea (NYSEArca: EWY).
Check out our recent coverage of single-country stock and currency ETFs:
- South Korea wasn’t reclassified as a developed market by benchmark manager MSCI (NYSE: MSCI) in a recent review as some investors had expected. An exchange traded fund that invests in the country is holding slim gains for 2011. [South Korea ETF Keeps ‘Emerging’ Tag]
- An exchange traded fund following the movement of Brazil’s currency against the U.S. dollar has been rising after a steep pullback in late 2010 due to government intervention. [Brazilian Real ETF Creeps Higher]
- The Netherlands exchange traded fund has been down lately as the Eurozone financial saga continues and investors await a key austerity vote this week in Greece. [Netherlands ETF Falls]
- The Swedish economy is expected to expand this year but will begin to slow, according to recent research. [Sweden ETF Tumbles]
- An exchange traded fund for South Africa has fallen into red for 2011 and recently dropped below its 200-day moving average, a technical key level in technical analysis. [South Africa ETF Hurt]
- ETF Spotlight on Rydex CurrencyShares Swiss Franc Trust. [ETF Spotlight]