The “sell in May and go away” theory was dispelled this year as the S&P 500 and Dow Jones Industrial Average closed the month at record highs with May gains of 2.1% and 1.05%, respectively.
While May was a solid month for U.S. stocks, it was a banner month for a plethora of emerging markets exchange traded funds, including many of the niche varietal. In fact, 18 of May’s top 20 non-leveraged ETFs were emerging markets funds.
A deeper look at that group reveals the May dominance of India and Russia ETFs as 14 single-country funds tracking those nations are among May’s top 20 ETFs. [After Modi Win, Will Investors Finally Return to India ETFs?]
On that note, approaching India and Russia ETFs cautiously in the near-term appears advisable as both groups of ETFs sold-off in the last week of May, though the profit-taking in India funds was far more dramatic.
Given the heavy presence of India and Russia ETFs on this list, some entries will be condensed to include multiple ETFs. All return data is courtesy of XTF. Let’s get started with the…
EGShares India Small Cap ETF (NYSEArca: SCIN)
May gain: 22.4%
Comment: SCIN was locked in a title battle with the Market Vectors India Small-Cap Index ETF (NYSEArca: SCIF) for top honors last month. The former edged out the latter by just a tenth of a percent. Highlighting the strength of Indian small-caps for much of May is this anecdote: There are just three India small-cap ETFs, but those three, SCIN, SCIF and the iShares MSCI India Small-Cap ETF (NYSEArca: SMIN), were three of the four best ETFs last month. [India Small-Cap ETFs Slump After Election Rally]
Be careful, though. All three fell last week with SCIF and SCIN each losing more than 6%.
EGShares India Infrastructure Index Fund (NYSEArca: INNX)
May gain: 19.5%
Comment: INXX is one of the more hyper-focused India ETFs, but the explanation for why this fund surged last month is simple. Markets are betting Narendra Modi’s victory means India will finally address one of the emerging world’s worst infrastructure problems.
The real test for the ETF will come in the new leader’s ability to enact legitimate reform by convincing local governments to permit new infrastructure projects. INXX also lost more than 6% last week. [India Election Results Could Boost Infrastructure ETF]
Market Vectors Russia Small-Cap ETF (NYSEArca: RSXJ)
May gain: 15.2%
Comment: RSXJ is the lone Russia small-cap ETF, but it was the best performer of the four single-country Russia ETFs last month. In developed markets, the U.S. in particular, small-caps often trade at premiums to larger stocks.
In Russia, the entire market is deeply discounted to its own historical averages and the broader emerging markets universe. RSXJ, which devotes 76.4% of its weight to companies with market values of $1 billion to $5 billion, has a P/E of just 5.6 and a price-to-book ratio of 0.47. [Big Risk, Reward With Russia Small-Cap ETF]
iShares MSCI Russia Capped ETF (NYSEArca: ERUS)
May gain: 13.7%
Comment: All three of the large-cap Russia ETFs posted gains of at least 13% in May. The other two are the Market Vectors Russia ETF (NYSEArca: RSX), the largest Russia ETF, SPDR S&P Russia ETF (NYSEArca: RBL). ERUS is cap-weighted ETF, meaning its exposure to Russia’s state-controlled energy giants is excessive compared to RSX.
ERUS devotes a third of its weight to OAO Gazprom and Lukoil, but that was alright in May because those stocks traded at an average 48% discount to their 10-year P/E ratios.
WisdomTree India Earnings Fund (NYSEArca: EPI)
May gain: 13.6%
Comment: The largest India ETF was also the best performer among the funds focusing on Indian large-caps last month. In addition to EPI, four other India large-cap ETFs were among May’s 20 best ETFs. EPI holds 170 stocks, giving the fund a deeper bunch than some other India large-cap ETFs that have 50 to 70 holdings. EPI is actually a blended ETF as 101 of its holdings are large or mid-caps.
iShares MSCI Turkey ETF (NYSEArca: TUR)
May gain: 11.8%
Comment: Remember when Turkish stocks and TUR were repudiated by global investors? The ETF doesn’t either because May is the second consecutive month in which TUR ranks among the best non-leveraged ETFs. [April’s Best ETFs: Commodities Cruise]
TUR gained 1% last week after a surprise rate cut from the Turkish central bank. Turkey’s benchmark repo rate is now 9.5% with expectations of another cut to 9% coming over the next few months.
First Trust Global Wind Energy Fund (NYSEArca: FAN)
May gain: 8.2%
Comment: One of just two non-emerging markets ETFs on the May top 20 list, FAN partied like it was 2013 again last month. FAN is part of a negative correlation scenario that savvy traders should not overlook, that being the tendency of wind stocks and natural gas futures to move opposite of each other. [Wind Stocks, ETFs Contend With Cheap Natural Gas]
The U.S. Natural Gas Fund (NYSEArca: UNG) fell 5.1% last month while FAN was soaring.