Languishing for most of the year, emerging market exchange traded funds are finally outperforming U.S. and developed market equities, particularly has political tensions escalate on Capitol Hill.
“Whatever weakens the U.S. economy would be EM-positive as it would tie Fed’s hands,” Inanc Sozer, economic research manager at Odea Bank AS in Istanbul, said in a Bloomberg article.
Investors have been pulling away from emerging market stocks earlier this year in anticipation of an end to easy money. However, the Fed’s unexpected decision to keep quantitative easing in mid-September has helped propel emerging markets.
Over September, the best performing emerging market-related ETF was the iShares MSCI Emerging Markets Consumer Discretionary ETF (NYSEArca: EMDI), which gained 14.3%. The fund tracks consumer discretionary stocks from the emerging markets. EMDI has a 0.68% expense ratio. [September & Q3 ETF Performance Report]
The ETF tracks 91 stock components, and the top holdings include Naspers LTD 11.1%, Hyndai Motor 11.0% and Hyndai Mobis Co. 5.6%.
Top country allocations include South Korea 32.1%, South Africa 17.2%, China 8.1%, Taiwan 6.0% and Indonesia 5.9%.
The First Trust ISE Chindia Index Fund (NYSEArca: FNI) gained 11.2% in September. The fund tracks companies in India or China and weights the top three in each country at 7%, the next three in each country at 4%, the next three in each country at 2%, and the remaining are equally weighted. FNI has a 0.60% expense ratio.
The ETF holds 49 stocks, and the top holdings include Baidu 9.1%, Michael Kors 7.0% and Infosys Technologies Limited 7.0%. Sector allocations include information tech 44.1%, consumer discretionary 21.8%, financials 10.1%, energy 8.7%, telecom services 7.9%, health care 4.8%, industrials 1.3%, materials 0.7% and utilities 0.7%.