ETF Trends
ETF Trends

The Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging markets exchange traded funds by assets, are up an average of 12.6% year-to-date and some market observers believe the good times for emerging market equities can continue.

Emerging markets equities and exchange traded funds were among the asset classes seen as highly vulnerable to Donald Trump winning November’s U.S. presidential election. It appears that investors are dealing with the notion of “President Trump” and are putting money to work with ETFs tracking developing economies.

“Emerging markets funds could see further upside after logging a stellar first quarter, according to traders betting on emerging markets’ growth. One popular emerging markets exchange-traded fund, the iShares MSCI Emerging Markets ETF (EEM), has gained 13 percent year to date and attracted $674 million in fund flows in that time per FactSet. The S&P 500 ETF (SPY) is up just over 5 percent year to date,” reports CNBC.

The iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) is this year’s top asset-gathering ETF, having added $6.62 billion in assets as of April 3. IEMG is the low-cost alternative to EEM. 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.

“The growth so far this year in the EEM, top-weighted holdings of which include Samsung, Tencent, Taiwan Semiconductors and Alibaba, could just be the beginning, said Eddy Elfenbein, editor of the Crossing Wall Street bog,” according to CNBC.

Emerging markets stocks and ETFs have been laggards during the current bull market, trailing U.S. indexes such as the S&P 500 by wide margins. That could mean it is time for emerging stocks to take on leadership roles, particularly after the group showed promising signs of rebounding in 2016.

Year-to-date, 10 of the 11 best-performing non-leveraged ETFs are emerging markets funds.

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

Tom Lydon’s clients own shares of EEM.