Nothing seems to be going right for marquee emerging markets ETFs this year. Whether its diversified funds, country-specific ETFs or bond funds, it is hard to find an ETF with the emerging markets label that has recently shown positive signs. Add emerging markets currency ETFs to that list.
“Emerging Market currencies benefit from a wealth of positive factors, such as: structural trends, faster growth, favorable demographics, falling inflation rates, healthy balance sheets and capital inflows,” said Credit Suisse earlier this year. Those positive traits remain in place throughout the developing world, but that has not meant much this year at the currency level.
Renewed interest in the U.S. dollar as a safe-haven coupled with rejection of riskier developed market currencies such as the dollars of Australia, Canada and New Zealand, have sent scores of emerging markets currencies tumbling. Active interest rate-cutting campaigns by developing world central banks have not helped matters, either. [Currency Diversification With ETFs]
The confluence of negative factors is weighing on the WisdomTree Emerging Currency Fund (NYSEArca: CEW). CEW, which has been around since May 2009, tracks the Mexican Peso, Brazilian Real, Chilean Peso, Colombian Peso, South African Rand, Polish Zloty, Russian Ruble, Turkish New Lira, Chinese Yuan, South Korean Won, Indonesian Rupiah, Indian Rupee, Malaysian Ringgit, Philippine Peso and Thai Baht.
That is another way of saying the ETF is being hit from a variety of angles this year. CEW’s 15 constituent currencies are basically equal-weighted with allocations ranging from 6.36% to 6.89%. In the current environment of weakness across the emerging market currency board, the equal-weight approach is a drag on the fund. [Alternative ETFs]
This is just a smattering of the issues affecting CEW: On Monday, the Indian rupee touched a record low against the U.S. dollar, sending the WisdomTree Indian Rupee Fund (NYSEArca: ICN) down 1.6%. Amid concerns about stagflation, the WisdomTree Brazilian Real Fund (NYSEArca: BZF) is down 5.5% in the past month. Those two currencies combine for just over 13% of CEW’s weight. [Rupee’s Plunge Could Affect Several ETFs]