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%.
The First Trust BICK Index Fund (Nasdaq GIDS: BICK) gained 10.7% over the last month. The ETF holds stocks from Brazil, India, Mainland China and South Korea. Each country represents about 25% of the underlying index, and all components are equally weighted. BICK has a 0.64% expense ratio.
The fund has 88 components and the top holdings include Dr Reddy’s Laboratories 2.0%, Wipro 2.0% and WNS Holdings 2.0%. Top sectors include financials 27.5%, information technology 19.1% and consumer discretionary 11.0%.
The Guggenheim BRIC ETF (NYSEArca: EEB) increased 10.4% over September. The fund tracks companies from BRIC – Brazil, Russia, India and China – markets. EEB has a 0.64% expense ratio.
The ETF follows 80 securities, and the top holdings include China Mobile 9.2%, Baidu 5.8% and Itau Unibanco 5.5%. Top sectors include energy 23.3%, financials 17.9% and telecom services 16.0%.
Regional breakdown includes Brazil 46.1%, China 23.8%, Hong Kong 16.8%, India 10.9% and Russia 2.3%.
The EGShares EM Dividend High Income ETF (NYSEArca: EMHD) was up 10.2% in September. The fund follows an equally weighted index of the 50 highest yielding, liquid emerging market equity securities on the FTSE Emerging All Cap ex Taiwan Universe. The ETF also limits the number fo stocks in each industry and country to 10. EMHD has a 0.85% expense ratio.
The ETF has 50 components and the top holdings include Hexaware Technologies 2.8%, National Bank of Pakistan 2.6% and Ford Otomotiv Sanayi 2.4%. Sector allocations include financials 20.8%, utilities 20.3% and basic materials 16.4%.
Top country allocations include 20.7%, South Africa 18.1%, China 14.7%, Turkey 13.9% and Pakistan 8.5%.
Two of the more notable emerging market ETF performers in September include the EGShares Consumer Services GEMS ETF (NYSEArca: VGEM), which rose 13.8%, and EGShares Consumer Goods GEMS ETF (NYSEArca: GGEM), which gained 12.3%. However, both funds are slated to be delisted prior to the open on Monday, October 7, according to a press release.
For more information on developing economies, visit our emerging markets category.
Max Chen contributed to this article.