The MSCI Emerging Markets Index is up nearly 30% year-to-date, marking an impressive, ongoing resurgence for developing world equities.
Some analysts believe emerging markets stocks can continue delivering upside for investors. However, there are some risks to be mindful of. Historical data points indicate the current bull market in emerging markets stocks could last awhile.
Additionally, some emerging markets funds are among this year’s top asset-gathering ETFs, including the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO). However, investors looking for truly large gains with emerging markets ETFs can up their risk profiles and consider more target fare, including the following high-flying ETFs.
VanEck Vectors Brazil Small-Cap ETF (NYSEArca: BRF)
Brazilian stocks are among the best performers in the emerging world this year, a sentiment that certainly extends to small-caps. While domestic small-caps are lagging, BRF is up nearly 61% year-to-date.
Brazil, Latin America’s largest economy, is one of the more volatile emerging markets, but some investors believe Brazilian equities still offer upside potential. That means an ETF like BRF is not a risk-free bet. BRF has a three-year standard deviation of almost 36%, which is more than double the same metric on the MSCI Emerging Markets Index.
BRF devotes almost a third of its weight to consumer discretionary stocks and a combined 27.6% of its roster to utilities and materials names.
Global X China Materials ETF (NYSEArca: CHIM)
The materials sector does not always command a lot of attention in the U.S., but it is an important part of the emerging markets equation. Good thing the Global X China Materials ETF is up more than 59% this year.
CHIM tracks the Solactive China Materials Total Return Index. Investors should be aware that this is a small ETF with just over $4.2 million in assets under management. CHIM has a standard deviation of 29.1% and trades at a discount to the U.S. materials sector and the MSCI Emerging Markets Index.
Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ)
On the back of stellar performances by Chinese Internet stocks, the Emerging Markets Internet & Ecommerce ETF is up a whopping 62.5% year-to-date.
The emerging market internet segment has also capitalized on the renewed focus on growth-oriented stocks earlier this year, along with the search for greater value in international markets, such as developing company stocks, as the U.S. equity rally pushes into its ninth year with even pricier valuations.
China is the world’s largest Internet market with more Internet users than the U.S. population, but many emerging markets have small Internet penetration. That bodes well for EMQQ’s long-term growth potential.
Tom Lydon’s clients own shares of EMQQ and VWO.