One of 2015’s more prominent exchange traded funds trades has been the resurgence of emerging markets funds.
Year-to-date, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging markets ETFs by assets, are up 11.1% and 9.8%, respectively.
Investors also continue to enjoy the steadiness offered by low volatility ETFs as highlighted by inflows to funds such as the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV). The iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEArca: EEMV) is proving the benefits of an emerging markets/low volatility marriage. [ETFs Using MSCI Indexes see Assets Swell]
At the very least, EEMV has outpaced EEM by 70 basis points this year and while the low volatility offering lags VWO by 60 basis points, EEMV’s 2015 volatility is just 12.8% compared to 17.9% for VWO, according to ETF Replay data.
EEMV’s “strategy has had a good track record–as measured by the back-tested performance of this fund’s benchmark index (the index’s live performance commenced in November 2009). Over the trailing 15- and 10-year periods through April 2015, this fund’s underlying index generated 408 and 335 basis points, respectively, of annualized outperformance versus the cap-weighted MSCI Emerging Markets Index, with significantly lower volatility,” according to Morningstar.
Morningstar has a four-star rating on the $2.6 billion EEMV. The ETF, which turns four in October, is, not surprisingly lightly allocated to higher beta emerging markets. For example, EEMV holds no Russian stocks and Brazil and India combine for just over 6% of the ETF’s weight.
Taiwan and South Korea, two of the lowest beta developing markets, combine for 27% of EEMV’s weight. China is the fund’s largest country weight at 24.4%. [Low Vol ETFs in Focus]