Inflows to These Emerging Markets ETFs

No need to do a double-take with that headline though it is understandable why some readers would want to.

Enter the phrase “emerging markets outflows” into any search engine, click the news tab and a bounty of articles, none of which are conveying good news, pop up. To be precise, emerging markets funds bled $12.2 billion last month, the fast rate of redemptions since 2011. [Worsening EM Outflows]

At least two multi-country ETFs are not only resisting the theme of departures from emerging markets funds, but are on the receiving end of inflows as well. It may not sound like much, but in this environment the amount is impressive. The EGShares Emerging Markets Consumer ETF (NYSEArca: ECON) and the EGShares Emerging Markets Domestic Demand ETF (NYSEArca: EMDD) have brought in early $32.6 million combined since the start of 2014.

While both funds have traded lower since the start of the year, inflows to ECON and EMDD could be a sign that investors still believe in the emerging markets consumer.

“The domestic demand-driven sectors within emerging markets not only represent a bright spot amid the recent EM turmoil, but they are also an attractive investment opportunity for a long-term, strategic allocation,” said Robert Holderith, founder and president of Emerging Global Advisors, in an email to ETF Trends.

ECON, the largest EGShares ETF, resisted the emerging markets outflow theme last year as well, attracting fresh assets as investors ran out of rival products. South Africa, Mexico and China combine for nearly 52% of ECON’s weight. The single-country ETFs tracking those nations have been slack performers this year, but a better than 32% combine weight to Mexico and China could prove advantageous for ECON because of the sturdy external account situations in those countries. [Still a Case for the Emerging Markets Consumer]

EMDD allocates more than 43% of its combined weight to China and Mexico. The ETF is also conservatively positioned at the sector level as telecom, staples, utilities and health care names combine for about 71% of the fund’s weight. Earlier this week, EMDD began tracking the S&P Emerging Markets Domestic Demand Index. [S&P Introduces New EM Index]

“The recent EM sell-off has impacted broad-based EM ETFs, but thematic funds such as EMDD and ECON have seen positive inflows largely because of their focus on organic, long-term growth within EM through domestic demand, which has also been a less volatile area to be invested in,” said Holderith.