Emerging Market ETFs

After years entrenched in safe investments, investors are finally coming out of hiding and taking greater bets on riskier emerging market exchange traded funds.

At the end of the fourth quarter, exchange traded product, which included ETFs and exchange traded notes, flows revealed greater risk appetite, with heavy inflows to emerging market equity and debt funds, according to a BlackRock Investment Institute research note. [Investors are Exploring with International ETFs: Schwab]

“Inflows are powered by an appreciation for the emerging world’s improving fiscal, governmental and economic conditions,” BlackRock said.

Specifically, emerging market equity funds attracted a record $27.1 billion in the fourth quarter, over double the amount in the third quarter of 2012, driven by tripling flows into China-related ETPs to $12.2 billion after the Chinese elections. Emerging market ETPs have accumulated $276 billion in assets under management, or one fifth of total equity ETP assets.

  • Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO)
  • iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM)
  • WisdomTree Emerging Markets High-Yielding Equity Fund (NYSEArca: DEM)

Meanwhile, developed market equities saw inflows of $30 billion, diminishing a third from new third quarter inflows.

Additionally, emerging market bond funds attracted $3.7 billion in new inflows over the fourth quarter, with overall fixed-income inflows rising 28% compared to the previous quarter to $15.8 billion.

Looking at emerging market debt funds, Brazil, Mexico and Russia make up the top three country allocations.