Investors Flocking to Emerging Market ETFs Amid Rally

ETF Trends

Broad emerging market ETFs have been outperforming the S&P 500 since September and recently climbed to new 52-week highs. Specifically, iShares MSCI Emerging Markets (EEM), expense ratio 0.67%, continues to reel in significant assets via creations.

Just year to date in 2013, EEM has already seen north of $3 billion enter the fund, and in 2012 the ETF saw more than $10 billion in inflows. Interestingly, competitor Vanguard FTSE Emerging Markets (VWO), expense ratio 0.20%, which recently announced a significant index benchmark change which we documented throughout the last quarter of last year as did the ETF media to a large degree, also reeled in more than $10 billion in 2012, and approximately $700 million in net creations YTD in 2013. [Emerging Market ETF Battle: Vanguard vs. iShares]

If these asset numbers appear large, that is because, quite simply, they are, at least in the ETF asset management landscape. EEM currently has north of $52 billion in AUM after the strong surge as of late in creations, and VWO north of $61 billion in AUM, making these two ETFs numbers 4 and 3 respectively, among all U.S. listed ETPs in terms of AUM. [Two Reasons to Stick with Emerging Market ETFs]

Options flows have appeared more cautious in recent sessions in EEM despite the high level of asset inflows, as it seems that institutional holders are likely locking in recent gains and protecting against potential downside in the case of a reversal.

Broad based EM index benchmarks, which lagged U.S. equities for example for most of 2012 in terms of performance, have vaulted forward in the past several months in terms of relative strength, as EEM for example is within shouting distance of a multi-month high ($45.33) that was touched just nine trading sessions ago.

From an underlying “top holdings” portfolio perspective, EEM’s country breakdown looks like the following: China, 17.78%, South Korea 14.83%, Brazil 11.97%, Taiwan 10.72%, and South Africa 7.76%, so it makes sense for the single country ETFs that track these countries to remain in our focus as well from both a technical as well as fund flows standpoint.

Funds to watch include the following: FXI (iShares FTSE China 25 Index, Expense Ratio 0.72%), EWY (iShares MSCI South Korea, Expense Ratio 0.59%), EWZ (iShares MSCI Brazil, Expense Ratio 0.59%), EWT (iShares MSCI Taiwan, Expense Ratio 0.59%), and EZA (iShares MSCI South Africa, Expense Ratio 0.59%).

iShares MSCI Emerging Markets

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For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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