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Emerging Market Crisis: 5 ETFs Down Over 30% in 2015

Thanks to rate hike concerns and a prolonged weakness in commodities, emerging markets have been struggling since the start of this year. The woes deepened in the second half when non-stop worries ranging from the China turmoil, to weak global growth and falling exports gripped the stock market globally. Additionally, sluggish emerging market currencies, a strong U.S. dollar, and falling oil prices are posing major threats to these stocks.

Further, back-to-back solid job gains in the past couple of months have lift the chances of the Fed pulling its trigger on the first rate hike in almost a decade, as early as in two weeks. This has raised worries over the emerging markets, which were the worst hit by the taper tantrum of 2013 that resulted in a huge capital flight. This is because the end of a cheap and an abundant dollar era would pull out more capital from these markets, stirring up trouble for most emerging nations (read: 5 Broader Emerging Market ETFs Surging This Quarter).
 
Year to date, the two most popular ETFs – iShares MSCI Emerging Markets ETF (EEM) and Vanguard FTSE Emerging Markets ETF (VWO) – have seen huge outflows of nearly $7 billion and $2.6 billion, respectively. The bearish trend is expected to persist in the months ahead should the twin attacks of interest rate hike and lower commodity prices be encountered. As per Bloomberg, emerging market funds are on track to post the first annual net outflow in 27 years.

As per the International Monetary Fund (IMF), emerging markets and developing economies will likely see slower growth in 2015 for the fifth consecutive year with deep recession in Brazil and Russia. The agency cut the growth outlook by 0.2% each for this year and the next to 4% and 4.5%, respectively. Brazil is expected to contract 3% this year and 1% in the next while Russia will shrink 3.8% this year and 0.6% in the next. However, India remains the bright spot with expected growth of 7.3% and 7.5% for this year and the next, respectively (read: Top-Ranked ETFs to Tap India's Growth Story).    

Given the huge outflows and the pessimism over emerging market growth, the appeal for these ETFs has dampened, pushing most of the ETFs deep into the red territory from a year-to-date look. Below, we have highlighted those ETFs that are down more than 30% in the year-to-date timeframe:  

iShares MSCI Colombia Capped ETF (ICOL)

This fund tracks the MSCI All Colombia Capped Index, holding 31 stocks in its basket. It is heavily concentrated on the top two firms – Bancolombia and Grupo De Inversiones Suramericana – that combine to make up for 18.5% share while other firms do not hold more than 6.43% of assets. Financials dominates the fund’s return at 37 while utilities, materials, energy and consumer staples round off the top five with double-digit exposure each. The product has been able to manage assets worth $12.5 million and trades in a light volume of around 10,000 shares per day. Expense ratio came in at 0.61%. ICOL was down 47.3% and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.

iShares MSCI Brazil Small-Cap ETF (EWZS)

This product provides targeted exposure to the Brazilian small-cap stocks. It follows the MSCI Brazil Small Cap Index, charging investors 62 bps in fees per year. The fund holds 53 stocks in its basket with none holding more than 5.03% of assets. From a sector look, consumer discretionary takes the top spot at 39.7%, followed by double-digit exposure each in industrials, consumer staples and financials. The ETF has amassed $26.4 million in its asset base while trades in lower volume of 39,000 shares a day on average. It has lost 46.2% so far in the year and has a Zacks ETF Rank of 5 or ‘Strong Sell’ with a High risk outlook (read: Brazil Stocks, ETFs Ignore Slump: Rally on Rousseff Issues).
 
Market Vectors Indonesia Small-Cap ETF (IDXJ)

This fund targets the small cap segment of the Indonesian equity market by tracking the Market Vectors Indonesia Small Cap Index. Holding 31 stocks in its basket, the product is largely concentrated on the top 10 holdings at 60%. Further, financials dominates the fund’s portfolio at 52% while industrials and energy round off to the next two spots at 27.1% and 11.4%, respectively. IDXJ is unpopular and less liquid having AUM of $5.8 million and average daily volume of more than 2,000 shares. It charges 61 bps in annual fees and has shed about 46% in the year-to-date timeframe. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (see: all the Emerging Asia Pacific ETFs here).
 
Market Vectors Egypt Index ETF (EGPT)

The fund provides exposure to the companies that are domiciled and primarily listed in Egypt or that generate the majority of their revenues in that country. It tracks the Market Vectors Egypt Index and holds 28 stocks in its basket with none holding more than 7.32% of assets. It has managed $28 million in its asset base while trades a light volume of about 8,000 shares a day. Expense ratio came in at 0.97%. In terms of sector holdings, about half of the total assets are invested in the financial sector, followed by telecom (13.6%), consumer staples (11.6%) and materials (10.7%). The product has lost 36.6% so far this year and has a Zacks ETF Rank of 5 with a High risk outlook.

iShares MSCI All Peru Capped ETF (EPU)

This product targets the Peruvian stock market by tracking the MSCI All Peru Capped Index. In total, it holds 27 stocks with concentrated exposure on the top two firms – Southern Copper and Credicorp – with over 22% share each. Other firms do not hold more than 5.04% share. Here, material is the top sector accounting for 47.2% share, closely followed by financials at 29.4%. The product has amassed $111.9 million in AUM while trades in average daily volume of 91,000 shares. It charges 62 bps in annual fees and expenses. The fund has delivered negative returns of 34% in the year-to-date timeframe and has a Zacks ETF Rank of 4 with a Medium risk outlook (read: Believe in T Rowe Price? Invest in These EM ETFs).

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ISHARS-EMG MKT (EEM): ETF Research Reports
 
VANGD-FTSE EM (VWO): ETF Research Reports
 
ISHARS-MSCI CC (ICOL): ETF Research Reports
 
ISHARS-MS BR SC (EWZS): ETF Research Reports
 
MKT VEC-INDO SC (IDXJ): ETF Research Reports
 
MKT VEC-EGYPT (EGPT): ETF Research Reports
 
ISHARS-MSCI PER (EPU): ETF Research Reports
 
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