The worldwide stock markets put up a stellar show in the first half of 2017, shrugging off political turmoil in Washington, Middle East tensions, increased Brexit uncertainty and high stock valuations. According to The Wall Street Journal analysis of the world’s 30 biggest stock markets by value, all but four (Canada, China, Israel and Russia) registered gains in the first half, marking the performance the best since the immediate bounce back from the depth of the 2008-09 global financial crisis.
While the S&P 500 index posted its strongest first half since 2013, the spotlight was on international investing. This is especially true as Vanguard FTSE All-World ex-US ETF VEU, targeting the international equity market, has added about 13.2% compared to a gain of 10.7% for iShares MSCI ACWI ETF ACWI, which targets the global stock market, including U.S. (see: all the World ETFs here).
The winners are spread across many corners of the globe with emerging markets leading the way. Strong corporate earnings, a pickup in economic activity in many parts of the world especially Europe, a rebound in commodity prices and support from central bank across the globe were the major contributors to the global rally. Additionally, the surge in the technology sector and Chinese giants added to the strength. Further, the Trump upheaval and spate of weak U.S. economic data lately provided an added advantage to international investing.
The lure of the international bourses is likely to remain as Europe and Britain are on track to end the cheap monetary policy era, in line with the Fed policy of tightening its stimulus program. The converging policies will push the U.S. dollar lower and other currencies higher, making international investing tempting (read: International ETFs Top First-Half Asset Flows).
Given this, we have highlighted the best performing international ETFs of 1H. Any of these strong momentum plays could be a compelling choice for investors heading into the second half, provided the economic trends persist.
Emerging Markets Internet & Ecommerce ETF EMQQ – Up 38.8%
After many years of underperformance, low valuations have made emerging market products especially appealing to investors. In fact, EMQQ is the clear winner in this space benefiting from the dual tailwinds of emerging market and a surge in technology. This ETF targets the internet and ecommerce sectors of the developing world by tracking the Emerging Markets Internet & Ecommerce Index. Holding 47 securities in the basket, it is concentrated on the top two firms with over 8% share each. Chinese firms account for the lion’s share with 61% while South Korea, Russia and South Africa make up for a decent exposure.
The product has accumulated $151.8 million in its asset base and charges 86 bps in annual fees. Volume is moderate with 60,000 shares exchanging hands daily on average. It has surged 38.8% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Top Emerging Market ETFs of First Half 2017).
VanEck Vectors Poland ETF PLND – Up 37.9%
Europe was the hot spot for investors for most of the first half as a large amount of money was put into the ETF tracking the region. In particular, Polish ETFs led the way higher thanks to strong domestic consumption, return of growth in investments, a strengthening zloty currency, and an expanding economy. That said, PLND is the outperformer, having gained nearly 38% (read: Top & Flop Zones of First Half and Their ETFs).
This product targets the Polish stock market by tracking the MVIS Poland Index. It holds 28 stocks with each holding no more than 8.71% of assets. The product has amassed $17.5 million in AUM and charges 60 bps in annual fees. It trades in a light average daily volume of about 6,000 shares and has a Zacks ETF Rank of 3 with a Medium risk outlook.
WisdomTree China ex-State-Owned Enterprises Fund CXSE – Up 36.9%
Chinese stocks surge amid persistent worries over tighter regulation and economic growth. The strength came from companies that belong to a new and developed China (that has stepped up efforts to upgrade manufacturing, and research and development) rather than the traditional government-run companies such as banks, energy and telecom firms. And CXSE is the biggest beneficiary of this trend, having gained 36.9% in the first half. This is because the fund offers exposure to targeted Chinese stocks that are not state-owned enterprises.
It tracks the WisdomTree China ex-State-Owned Enterprises Index, charging 32 bps in annual fees. Holding 70 securities in its basket, the fund is largely concentrated on the top firm with double-digit exposure while others make up for less than 8% share. Consumer discretionary and information technology take the top two spots at 30.4% and 29.7%, respectively, from a sector look, followed by financials (14%) and real estate (10.8%). The product has accumulated $11.4 million in its asset base while trades in a meager average volume of under 2,000 shares. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
Columbia India Small Cap ETF SCIN – Up 36.8%
Indian stocks were on a tear buoyed by the landslide victory of prime minister Narendra Modi in a key state election, upbeat GDP data, a slew of economic reforms, improving current account deficit, and of course uncertainty over President Trump’s protectionist agenda. While all India ETFs enjoyed smooth trading, SCIN targeting the small cap segment stole the show with 36.8% gains. It tracks the Indxx India Small Cap Index and holds 75 securities in its basket with none making up for more than 3.7% of assets.
From a sector look, industrials dominates the fund’s returns at 30.6%, closely followed by financials (18%) and consumer discretionary (17.3%). The fund has so far amassed $29.8 million in its asset base while charging 86 bps in annual fees. Volume is light, exchanging around 14,000 shares in hand a day. SCIN has a Zacks ETF Rank of 2 with a High risk outlook (read: Why No Taper Tantrum for EM ETFs Now).
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ISHRS-MSCI ACWI (ACWI): ETF Research Reports
WISDMTR-TR WTCH (CXSE): ETF Research Reports
VANECK-POLAND (PLND): ETF Research Reports
EM-INTRNT&ECMRC (EMQQ): ETF Research Reports
VANGD-FTSE AWLD (VEU): ETF Research Reports
COL-INDIA SC (SCIN): ETF Research Reports
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