Emerging markets exchange traded funds have been lagging U.S. stocks badly in 2011, but recent flow data suggests investors are positioning for a recovery in the group.
The iShares MSCI Emerging Markets (NYSEArca: EEM) is down 11.9% so far this year, while SPDR S&P 500 (NYSEArca: SPY) has managed a slight gain of 1.8%, according to Morningstar.
The emerging market ETF was the top seller in October, however. [Emerging Markets Lead October ETF Inflows]
Emerging markets are known for their big performance swings, so the ETFs are more volatile than funds indexed to U.S. blue chips. The funds have been punished this year on the Eurozone sovereign debt crisis.
Developing economies such as China and Brazil are growing faster than the U.S. and Europe, which are dealing with budget deficits and high debt levels. However, betting on emerging markets hasn’t worked out in 2011, writes Matthew Craft for the Associated Press.
“If you were anywhere in the world other than in the S&P 500 this year, you got crushed,” Greg Peterson, director of research at Ballentine Partners, said in the AP report.
Indeed, emerging markets have a long history of frustrating individual investors unable to stomach the volatility. [Investors Chase Emerging Markets ETFs]
Brazil’s economy expanded 3.1% over the past year, while China had economic expansion registering at 9.1%, according to the AP report. Yet both markets are lower this year.