Investors are using exchange traded funds to slice and dice the emerging markets.
While broad emerging market ETFs have lost $6 billion in outflows over the past three years, country-specific ETFs that target emerging economies have seen $7 billion in inflows, reports Eric Balchunas for Bloomberg.
“This indicates that at least some investors are breaking EM exposure into more targeted pieces as they, along with such people as Mohamed El-Erian, question the logic of grouping disparate countries like India, Russia, Mexico and Poland into one, catch-all pile,” Balchunas said.
Specifically, among the top emerging market locales over the past three years, the 14 India-related ETFs attracted $5.3 billion in net inflows, China saw $2.5 billion in inflows and Russia added $1.2 billion, according to Bloomberg data.
Investors have utilized country-specific ETFs to capitalize on short-term shifts. For instance, options like the WisdomTree India Earnings Fund (NYSEArca: EPI), iShares India 50 ETF (NasdaqGM: INDY) and PowerShares India Portfolio (NYSEArca: PIN) have been popular for investors seeking India exposure after the election of pro-business Prime Minister Narendra Modi.
Some have also jumped onto the iShares China Large-Cap ETF (NYSEArca: FXI), SPDR S&P China ETF (NYSEArca: GXC) and Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) to capture the recent rally in Chinese equities.
Investors have also tried to catch a falling knife with the Market Vectors Russia ETF (NYSEArca: RSX), iShares MSCI Russia Capped ETF (NYSEArca: ERUS) and SPDR S&P Russia ETF (NYSEArca: RBL) after Russian equities fell in response to the Ukraine conflict and plunging oil prices.
However, investors are less apt to divvy up the developed markets, sticking to regional ETFs instead. For instance, regional European ETFs attracted $42 billion over the past three years while single-country Europe ETFs saw $8 billion in inflows.
Many have looked to the iShares MSCI EMU ETF (NYSEArca: EZU) and the SPDR EURO STOXX 50 (NYSEArca: FEZ) to capture Eurozone market moves. More recently, currency-hedged ETF options, such as the the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ), have experienced huge inflows as investors capitalize on European Central Bank easing and hedge against euro currency depreciation. Josh Brown, chief executive officer of Ritholtz Wealth Management, argues that developed economies are more alike, which leaves little room for divergence.
“There is no difference between Portugal and Spain. Portugal is like diet Spain. But, there’s a huge difference between Russia and India. One is a commodity exporter, one is an importer. Their demographic trends are racing in different directions,” Brown told Bloomberg.
For more information on developing economies, visit our emerging markets category.
Max Chen contributed to this article.