Time to Buy the Top Ranked Malaysia ETF?

Zacks

While some emerging markets have floundered so far in 2013, many in Southeast Asia have done quite well in the time frame. Products tracking countries like Thailand (THD) or Indonesia (IDX) have seen double digit gains so far in 2013, well in excess of peers in nations like Brazil or China which have actually seen losses in the time frame.

One country in the region has lagged so far in the year though, Malaysia. The country has faced a great deal of uncertainty thanks to an election which threatened to unseat the nation’s dominant party.

But with the election results favoring the incumbent, uncertainty surrounding the market has dissipated and the region appears to be well poised for solid growth going forward like its other Southeast Asian counterparts (Malaysia ETF Surges on Election Result).

After all, the economy is expected to post growth of 5% to 6% in 2013, suggesting a pretty solid year is ahead for the nation. This could be especially true if the global developed market economy continues to recover, and high levels of investment and domestic consumption remain the name of the game going forward.

So, investors seeking to ride on the solid fundamentals and growth prospects of the economy should look to invest in iShares MSCI Malaysia ETF (EWM). Currently, we have a Zacks ETF Rank of 1 or 'Strong Buy' on the fund, so we believe that the ETF will outperform its peers in the near term (see all the Top Ranked ETFs here).

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for ETFs in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely, Low, Medium, or High.

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk (see more in the Zacks ETF Rank Guide).

For investors seeking to apply this methodology to their portfolio in the emerging Southeast Asia market, we have taken a closer look at the top ranked EWM below:

iShares MSCI Malaysia ETF (EWM)

This fund seeks to match the price and yield of the MSCI Malaysia Index, before fees and expenses. EWM holds 43 stocks in its basket and is somewhat concentrated from both a sector and an individual security perspective.

From a sector perspective, financials makes up 31.5% of the total assets while industrials and telecommunication companies comprise 24.65%. Beyond this, consumer staples, utilities and consumer discretionary round out the rest of the top six, making up a combined 31%. From an individual holding perspective, the product puts about 54% of assets in the top 10.

While the ETF focuses on large caps that account for 94% share, mid cap takes the remaining portion in the basket, with no allocation made to small caps. The fund has a nice mixture of blend, growth and value securities, ensuring broad diversification in terms of style (The Best Investing Style ETF This Fiscal?).

The product manages an asset base of over $1 billion and trades at volume levels of more than 1.7 million shares a day. This suggests that bid/ask spreads are relatively tight and that total costs will not come in much higher than the 51 bps of expense ratio. Further, it is less volatile as indicated by its annualized standard deviation of 16.19%.

EWM was lagging its peers lately despite the solid economic fundamentals. However, with election over now, the ETF seems to be well poised to deliver strong results.

In fact, this could be the right time to create a position in the ETF as it has the ability to provide big gains in the months ahead. EWM has returned 20% in the last one year period while its year-to-date gains stand at 10%, largely thanks to the last one month in which the fund added nearly 9.8% alone (Can Anything Stop These Southeast Asia ETFs?).

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