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Best and Worst Performing EM ETFs of this Year

The Emerging Market ETFs corner has been a revelation in 2017. Despite concerns over the “Trump Effect” on emerging market economies, the MSCI Emerging Markets Index is up more than 12% on a year-to-date basis, easily outpacing gains of 5.46% for the S&P 500 and 6.03% for the MSCI World Index.

The outperformance can be attributed to impressive growth opportunities in emerging economies, low valuation of emerging market assets and rising commodity prices.

Emerging Markets: Solid Growth Potential

Strong growth opportunity in countries like India, Taiwan and South Korea is a key catalyst. Moreover, a stabilizing Chinese economy as well as receding inflation in Brazil and Russia, which are rebounding from a brutal recession is significantly positive for ETF investors. (Read More: Why Emerging Market ETFs Are Surging This Year)

South Africa and Indonesia also deserve a mention as they are seeing declines in the current account deficit. The IMF expects emerging economies as a whole to grow 4.5% in 2017, up from an anticipated 4.1% in 2016 and more than double the rate in advanced economies (1.9%). The growth is expected to increase further to 4.8% for emerging markets in 2018.

We also note that emerging markets are less perturbed by Brexit due to meager trade relations between these countries and U.K. (Read More: Bremain or Brexit: No Worries for EM ETF Investing)

Higher Interest Rate favoring EM ETFs

The rate of interest in the emerging market economies is also a lot higher than an almost 1% return in the U.S and negative returns in the euro region. Asset managers are currently more concerned with what is going on in these emerging market economies than how they will be impacted by U.S policy decision changes. (Read More: February ETF Asset Report: EM Gains, U.S. Loses)

We also believe that President Donald Trump’s recent failed attempt to repeal the Affordable Care Act (ACA) aka Obamacare clearly shows a fissure in the republican ranks. Skepticism over Trump’s ability to keep his promises has now created an uncertain environment.

Generally, rising U.S. interest rate is not good news for emerging economies. However, strategists now believe that emerging markets are in a really good position to absorb the two projected Fed rate hikes this year, following a 25 bps increase in the March 14–15, 2017 Federal Open Market Committee meeting.

It is interesting to note that per Barron’s, which quoted EPFR Global data, EM ETFs saw the biggest funds inflow through the Mar 15–22 week in more than seven months, following the rate hike. We believe that the Fed’s dovish stance of not allowing a fourth rate hike this year has prompted investors to put money in EM ETFs. (Read More: See How ETFs React When Hawks Act Like Doves)

EM Stocks Undervalued

Moreover, stock valuations in the emerging economies are much lower than the U.S. and developed markets. Per Reuters, which quoted the latest monthly fund manager survey from Bank of America Merrill Lynch (BAML), an overwhelming 81% respondents view the U.S. stock market as the most overvalued. On the contrary, 44% think emerging market stocks are undervalued.

Weaker Dollar, Higher Commodity Prices Positive

We also note that the U.S. dollar has underperformed the emerging market currencies to date. According to Financial Times, seven of this year’s 10 strongest currencies against the dollar are from emerging markets. This situation is extremely favorable for developing nations which have a high level of U.S. dollar denominated debt and commodity exports.

Additionally rising commodity prices are also favoring EM ETFs. (Read More: 5 Reasons Why Emerging Market ETFs Will March Higher)

Best ETFs

Columbia India Small Cap ETF SCIN - SCIN has surged 30.38% on a year-to-date basis. The fund tracks the Indxx India Small Cap Index. Total holding is 74 and the top 10 accounted for 34.18% of assets. The ETF has amassed $25.3 million in its asset base and charges 86 bps in annual fees.

REX Gold Hedged FTSE Emerging Markets ETF GHE - GHE has jumped 26.29% on a year-to-date basis. The fund tracks the FTSE Emerging Gold Overlay Index, with a total holding of 3. The ETF has amassed $1.5 million in its asset base and charges 65 bps in annual fees.

Emerging Markets Internet & eCommerce ETF EMQQ – EMQQ has soared 23.12% on a year-to-date basis. The fund tracks Emerging Markets Internet and Ecommerce Index. Total holding is 42 and the top 10 account for 60.11% of assets. The ETF has amassed $37.66 million in its asset base and charges 86 bps in annual fees.

Worst ETFs

Global X MSCI Nigeria ETF NGE – NGE is down 6.69% on a year-to-date basis. The fund tracks the Solactive Nigeria Index. Total holding is 21 and the top 10 account for 76.26% of total assets. The ETF has amassed $39.4 million in its asset base and charges 68 bps in annual fees.

iShares MSCI Russia Capped ETF ERUS – ERUS is down 3.16% on a year-to-date basis. The fund tracks the MSCI Russia 25/50 Index. Total holding is 28 and the top 10 account for 63.07% of assets. The ETF has amassed $492.6 million in its asset base and charges 64 bps in annual fees.

Global X MSCI Pakistan ETF PAK – PAK has declined 1.71% on a year-to-date basis. The fund tracks the MSCI All Pakistan Select 25/50 Index. Total holding is 43 and the top 10 accounted for 60.57% of assets. The ETF has amassed $33 million in its asset base and charges 68 bps in annual fees.

 

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GLBL-X PAKISTAN (PAK): ETF Research Reports
 
GLBL-X MS NIGRA (NGE): ETF Research Reports
 
ISHARS-MS RUSSA (ERUS): ETF Research Reports
 
EM-INTRNT&ECMRC (EMQQ): ETF Research Reports
 
COL-INDIA SC (SCIN): ETF Research Reports
 
REX-GLD HDG FEM (GHE): ETF Research Reports
 
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