Emerging markets exchange traded funds are looking to notch another round solid performances this year, extending some of the bullishness established in 2016.
However, there are multiple factors that will impact the performances of ETFs such as the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and other diversified emerging markets funds.
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 in 2017.
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. The technical outlook for EEM is encouraging in the eyes of some technicians.
“The 20-year chart of emerging markets is definitely one to watch very closely. The most striking conclusion out of this chart is the extremely long consolidation period. Watch how the triangle formation spans over 9 years now,” according to ETF Daily News.
EEM’s lower-cost counterpart is the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG), which was one of the top asset-gathering ETFs last year. In October, BlackRock lowered IEMG’s annual fee to 0.14% from 0.16% as part of a broader range of expense ratio reductions to the iShares core lineup.
The fee cuts may be a tactical way for BlackRock to position its ETFs as cheap fund alternatives in response to the changing DOL rules that will shine a light on the high costs associated with actively managed funds.
In the past couple of years, investors have increasingly turned to cheaper options to gain long-term exposure to various market segments.
Nevertheless, EEM is still a relevant investment as its vast liquidity and tight bid/ask spreads attract large institutional traders whom care more about executing large bets quickly than the long-term cost of holding the fund.
“Emerging markets are right now 15 pct below secular resistance which comes in at 42 points in EEM (the best known Emerging Markets ETF). If the 42 level would be broken, potentially in a couple of months, we would see an extremely bullish period for emerging markets,” adds ETF Daily News.
For more information on the ETF market, visit our ETF performance reports category.
Tom Lydon’s clients own shares of EEM.