The developing world is showing uneven growth, with countries like Russia and Brazil floundering. Consequently, investors should pick their spots in the emerging markets and pay particular attention to exchange traded funds that track tech-heavy Taiwan, India, China and Korea.
The deepening recession in Brazil and Russia have weakened the BRICs – Brazil, Russia, India and China – investment thesis. Alternatively, emerging market fund managers may replace the group with the TICKs, using tech-heavy Taiwan and Korea as a replacement to commodity-focused Brazil and Russia, reports Steven Johnson for the Financial Times.
“BRIC is not the engine of emerging market growth it was. There is a new order of things,” Steven Holden, founder of Copley Fund Research, told the Financial Times. “Tech is just rampant and the consumer is what you are investing in EMs now. I don’t think many people are aware of the new EM story as much as they should be. They think of Brazil, Russia, materials, big energy companies. That has changed hugely.”
Fund managers are already making the shift. For instance, as of December, 63% of funds held at least 50% of assets in TICK countries. JPMorgan, Nordea and Swedbank have at least 35% in Taiwan and Korea in some of their funds while Carmignac, Fidelity and Baillie Gifford have 3% or less in Brazil and Russia.
ETF investors can gain targeted exposure to TICK countries through country-specific ETFs.
The iShares China Large-Cap ETF (NYSEArca: FXI) is the largest China-related ETF that tracks Chinese companies listed on the Hong Kong stock exchange. Investors can also use China A-shares ETFs that track mainland Chinese stocks traded in Shanghai and Shenzhen plunged Friday, with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR). Additionally, investors can focus more on China’s tech space through the broad Powershares Golden Dragon China Portfolio (NYSEArca: PGJ), which includes a hefty 43.6% tilt toward information technology companies.
Lastly, the iShares MSCI South Korea Capped ETF (NYSEArca: EWY), Horizons Korea KOSPI 200 ETF (NYSEArca: HKOR), First Trust South Korea AlphaDEX Fund (NYSEArca: FKO) and SPDR MSCI South Korea Quality Mix ETF (NYSEArca: QKOR) can help an investor gain exposure to South Korea’s equities market.
Emerging market investors are also focusing on the boom in consumer spending and technological growth.
“In many emerging markets the speed with which young consumers are adapting to technological change, in areas such as ecommerce and online shopping, is much faster than in the US,” Richard Sneller, head of emerging market equities at Baillie Gifford, told the Financial Times. “Trends that we hoped would emerge 15-20 years ago have come to generate significant cash flows.”
Investors interested in accessing these sectors can also consider related ETF options. For instance, the EGShares Emerging Markets Consumer ETF (NYSEArca: ECON), EGShares Emerging Markets Domestic Demand ETF (NYSEArca: EMDD), iShares MSCI Emerging Markets Consumer Discretionary ETF (NYSEArca: EMDI) and WisdomTree Emerging Markets Consumer Growth Fund (NasdaqGS: EMCG) provide broad exposure to emerging market consumer sectors.
Furthermore, the Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ) focuses on internet names, notably those that cater toward online shopping or e-commerce.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.