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Emerging Market ETFs Slip to 52-Week Lows

Sweta Killa

Emerging markets have been out of investor’s favor over the past several months piling up heavy losses. Notably, the MSCI Emerging Markets Index plunged 20% since its peak last September, indicating that it has entered into a bear territory and will drop further. This is mainly thanks to slow economic growth, China turmoil, low commodity prices, falling exports, sluggish currencies, strong dollar, rising Treasury yields, and a looming interest rates hike.

The worries deepened in recent weeks following solid July jobs data that raised the chances of the Fed pulling its trigger on the first rate hike in almost a decade, as early as next month. 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.

Further, China’s surprise decision to devalue the yuan in order to boost its export competitiveness has triggered the broad sell-off in the emerging markets this week. This is because devaluation of the yuan means cheaper Chinese exports, lower prices for commodities and lower stock prices (read: ETFs to Move on Yuan Devaluation).

The bearish trend is expected to persist in the months ahead given that the emerging markets will continue to struggle from twin attacks of interest rates hike and lower commodity prices. As a result, the World Bank lowered its 2015 growth forecast for these nations to 4.4% from 4.8% and the International Monetary Fund cut its growth outlook to 4.2% from 4.6%.  

Moreover, recent economic data suggests that growth in emerging markets stagnated in July and employment fell for the fifth successive month. This is especially true as Markit Emerging Market PMI number of 50.2 for July remained close to 49.6 recorded in June, suggesting that emerging markets are growing at a meager 4% annually. This growth rate has been the weakest since 2002 excluding the 2008-09 global financial crisis and the 2013 ‘taper tantrum’.

In this tough environment, emerging markets stocks and ETFs have been on a wild ride over the past several months. While most of the products have seen terrible trading, we have highlighted four ETFs that slipped to 52-week lows in the last session and could see steeper falls in the days ahead. All these funds currently have a Zacks ETF Rank of 3 or ‘Hold’ rating (see: all the Broad Emerging Market ETFs here).

SPDR S&P Emerging Markets Dividend ETF (EDIV)
 
This fund provides exposure to the stocks from emerging market countries that offer high dividend yields by tracking the S&P Emerging Markets Dividend Opportunities Index. It has accumulated $370.6 million in its assets base and trades in average daily volume of roughly 68,000 shares. Expense ratio came in at 0.49%. In total, the fund holds 121 stocks in its basket with none holding more than 3.39% of total assets.

The product is slightly skewed toward financials at 26.9%, followed by telecom services and information technology with 18.1% share each. Taiwan accounts for one-fourth of the portfolio while South Africa and Brazil round off the next two countries with double-digit allocation each. The ETF dropped to a 52-week low of $28.45 per share, plunging 18.7% over the past three months.

PowerShares FTSE RAFI Emerging Markets Portfolio (PXH)

This ETF follows the FTSE RAFI Emerging Markets Index, a benchmark that seeks to track the performance of the largest emerging market equities on four fundamental measures – book value, cash flow, sales and dividends. Holding 338 securities in its basket, the fund allocates no more than 3.5% in a single security. Financials (32.1%) and energy (23.2%) take the top two spots while other sectors make up for a single-digit allocation in the basket (read: Can Emerging Market ETFs Defy U.S. Rates Hike?).  

In terms of country holdings, about one-fourth of the portfolio goes to Chinese firms while Brazil, Taiwan and Russia round off the next three spots with double-digit exposure each. The fund has amassed $387.8 million in its asset base, and trades in a good volume of around 220,000 shares a day. It charges 49 bps in annual fees from investors. PXH lost 16.7% over the past three months and touched a new 52-week low of $16.63 per share.

iShares MSCI Emerging Markets ETF (EEM)

It is the most popular and widely traded emerging market ETF with AUM of $24.2 billion and average daily volume of more than 47.6 million shares. The fund tracks the MSCI Emerging Markets Index and charges 68 bps in annual fees from investors. Holding 846 securities, the product is widely spread out across various components with each holding less than 3% of assets.

However, the product is tilted toward the financial sector at 29.4%, followed by information technology (17%). Among the emerging countries, China takes the top spot at 23.9% while South Korea and Taiwan round off the next two spots with double-digit exposure each. The fund slid to a 52-week low of $35.78 per share, representing a loss of about 13% over the past three months (read: ETFs to Lose or Gain from Solid July Job Data).

Vanguard FTSE Emerging Markets ETF (VWO)

This fund tracks the FTSE Emerging Index and holds 1,022 securities in its basket. Like the other counterparts, this ETF is also spread out across various securities as none holds more than 3% of assets. Here again, financials is the top sector accounting for 28%, followed by technology (13%), energy (9%) and consumer staples (9%). Chinese firms dominate the fund’s portfolio at nearly 26%, closely followed by Taiwan (14%) and India (12%).

VWO is also by far the most popular fund having AUM of $43.8 million and average daily volume of 11.5 million shares. It charges 15 bps in annual fees and expenses. The ETF shed 12.2% in the past three months by touching a new 52-week low of $37.04 per share.

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SPDR-SP EM DVD (EDIV): ETF Research Reports
 
PWRSH-F/R EMP (PXH): ETF Research Reports
 
ISHARS-EMG MKT (EEM): ETF Research Reports
 
VANGD-FTSE EM (VWO): ETF Research Reports
 
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