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 almost 16% this year, but that does not mean the rally in developing world equities is over.
Although emerging markets exchange traded funds are among this year’s most prolific asset gatherers in the U.S., some market observers argue that emerging markets equities are under-owned by big investors and that the asset class has more room to rally.
“In fact, some of the top performing stock markets this year have included Brazil’s Bovespa, which has risen nearly 14 percent year to date. Indonesia’s benchmark Jakarta composite, one of the outperformers for 2016, is also up nearly 7 percent,” reports CNBC.
Last week, Standard & Poor’s elevated Indonesia’s sovereign credit rating to investment-grade territory. Stocks in Southeast Asia’s largest economy have been solid this year, but are also lagging the MSCI Emerging Markets Index.
The Goldman Sachs ActiveBeta Emerging Markets Equity ETF (NYSEarca: GEM) is a smart beta option to consider for investors looking for diversified emerging markets exposure that is not cap-weighted.
GEM tries to reflect the performance of the Goldman Sachs ActiveBeta Emerging Markets Equity Index, which includes exposure to developing market stocks but selects components based on good value, strong momentum, high quality and low volatility.
The iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG), the low-cost alternative to IEMG is also one of this year’s top asset-gathering ETFs.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.
“As U.S. interest rates rise, investors need to look overseas to generate returns. The average emerging market ETF is up about 5 percent so far this year, overtaking even the best performing U.S. treasury ETFs,” according to CNBC.
The weaker dollar has been helping emerging markets assets this year and many bond traders believe the Federal Reserve will not raise interest rates next month and it is possible the Fed will not do so again this year.
To this point in the second quarter, two of top 10 asset-gathering ETFs are emerging markets ETFs, including VWO.
For more information on the ETF market, visit our ETF performance reports category.
Tom Lydon’s clients own shares of EEM.