As the rally in U.S. equities gets long in the tooth, investors should consider rotating into developing economies and emerging market-related exchange traded funds.
Joseph Mark Mobius, emerging market fund manager for Franklin Templeton Investments, argues that investors should think about shifting into better-performing emerging markets, reports Ansuya Harjani for CNBC.
For instance, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), which tracks the FTSE Emerging Index, and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which follows the MSCI Emerging Markets Index, are both up 8.6% year-to-date while the S&P 500 index has gained 2.6%.
Moreover, for those concerned about foreign exchange risks with the U.S. dollar strengthening, the iShares Currency Hedged MSCI Emerging Markets ETF (NYSEArca: HEEM) and the Deutsche X-trackers MSCI Emerging Markets Hedged Equity Fund (NYSEArca: DBEM) track developing markets while hedging against depreciating overseas currencies. Year-to-date, HEEM rose 9.3% and DBEM gained 7.5%.
Mobius is bullish on Asian markets, notably China, Indonesia, Thailand and Taiwan, arguing that the region is well-placed to weather volatility from a U.S. rate hike ahead.
“China is number one because of the variety and choices we have particularly now with the connect program,” Mobius said, referring to the Shanghai-Hong Kong connect scheme. [China H-Shares ETFs Still Look Attractive]
Investors interested in the Chinese markets can select from a range of ETF options. For instance, the iShares China Large-Cap ETF (NYSEArca: FXI) and SPDR S&P China ETF (NYSEArca: GXC) both track Chinese companies listed on the Hong Kong exchange. Additionally, the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR) was the first U.S.-listed ETF to offer physical exposure to mainland A-shares stocks. Year-to-date, FIX rose 21.1%, GXC gained 19.1% and ASHR returned 24.8%. [A-Shares ETF Soars, Crimps Bearish Options Buyers]
For Indonesia exposure, investors can take a look at the iShares MSCI Indonesia ETF (NYSEArca: EIDO) and Market Vectors Indonesia Index ETF (NYSEArca: IDX). EIDO is down 0.7% year-to-date while IDX is 0.8% higher.
The WisdomTree India Earnings Fund (NYSEArca: EPI), iShares India 50 ETF (NasdaqGM: INDY) and PowerShares India Portfolio (NYSEArca: PIN) provide exposure to India’s markets. Year-to-date, EPI added 2.3%, INDY gained 2.9% and PIN returned 5.9%.
Investors can also gain exposure to the prominent small island of Taiwan through the iShares MSCI Taiwan ETF (NYSEArca: EWT), which is up 4.8% so far this year.
Lastly, the SPDR S&P Emerging Asia Pacific ETF (NYSEArca: GMF) provides broad exposure to emerging economies in the Asian Pacific, including China 44.6%, Taiwan 22.2%, India 15.8%, Malaysia 5.5%, Indonesia 4.3%, Thailand 3.3%, Philippines 2.8% and Hong Kong 0.7%. GMF rose 11.3% so far this year.
For more information on the developing economies, visit our emerging markets category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of EEM.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.