ETF Trends
ETF Trends

After several years of disappointing returns, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and other diversified emerging markets exchange traded funds are delivering for investors this year.

VWO and EEM are the two largest emerging markets ETFs by assets. Although some developing economies have been viewed as vulnerable to Donald Trump’s presidency and there are concerns about the impact of interest rate increases by the Federal Reserves on emerging markets that have to service dollar-denominated debt, some market observers believe emerging equities can perform well again next year.

A sharp increase in U.S. Treasury yields and a stronger U.S. dollar have weighed on emerging assets, but BlackRock argued that a gradual Federal Reserve rate hike could limit further gains in yields and the USD, and the risks have already been baked into emerging assets.

Meanwhile, emerging market assets have already struggled and may be past their lowest point. The EM segment could slowly improve from here with strengthening current account balances, rising commodity prices and better fundamentals.

“For its part, the global economic recovery is trailing that of the U.S. Recovering global trade and commodity prices should ease the recessions in commodity-producing countries such as Brazil and Russia and stabilize growth in other emerging economies,” according to a Wells Fargo note posted by Dimitra DeFotis of Barron’s.

Brazil and Russia are two of this year’s top-performing emerging markets, though Brazilian stocks have recently stumbled in the face of more political volatility. Russian stocks continue to impress with the VanEck Vectors Russia ETF (NYSEArca: RSX), the largest Russia exchange traded fund, recently showing signs of breaking out on a technical basis.

“While emerging market earnings have been in decline since 2011, economic growth appears to be stabilizing, and low yields in the U.S. and developed economies provide time for emerging-economy fundamentals to improve. We see balanced upside and downside risks in 2017,” according to the Wells Fargo note posted by Barron’s.

For more information on the ETF market, visit our ETF performance reports category.

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.