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An Emerging Markets ETF Gem


It has been a trying year for plenty of diversified emerging markets ETFs and while many of these funds are still sporting year-to-date losses, there have been some signs of improvement in recent weeks. For example, the Vanguard FTSE Emerging Markets ETF (VWO) , the largest emerging markets ETF by assets, is down 12.2% year-to-date, but over the past two weeks, VWO has notched a decent rally.

Over the past 90 days, VWO is off 4.4%, which is not terrible considering the punishment endured by Indian and Indonesian equities over that period. Investors could have done even less bad with the smaller and unheralded EGShares GEMS Composite ETF (AGEM) . EGShares specializes in emerging markets and AGEM can be viewed as the firm’s answer to funds like VWO or the iShares MSCI Emerging Markets ETF (EEM). [EGShares Could Self Index its ETFs]

AGEM has stood out compared to its larger rivals. Over the past three months, the ETF is down just 1.1%. Since June 24, AGEM is higher by 7.7%, a move that is impressive when considering that unlike some EGShares ETFs, AGEM is BRIC-heavy. China, Brazil and Russia combine for over 56% of AGEM’s weight and India is thrown into the mix, BRIC accounts for two-thirds of AGEM’s country exposure. [It's Time to Rethink Emerging Markets ETF Exposure]

AGEM’s nearly 10.4% weight to India is high compared to rival, it is nearly double that of EEM’s India weight, but the EGShares has been able to endure the storm that has crushed other Asian ETFs for a couple of reasons. First, AGEM is not heavily allocated to Indonesia and Thailand, two former Southeast Asian stars that have swooned into bear markets. [India ETFs Tumble as Rupee Hits Record Low]

Second, AGEM has been buoyed by resurgent Chinese stocks. AGEM’s weights to India and Russia are larger than what is found with some rival funds, but so is the fund’s China exposure 28.3%, or 760 basis points more than what VWO allocates to the world’s second-largest economy.

AGEM tracks the Dow Jones Emerging Markets Sector Titans Composite 100 Index. As is the case with comparable emerging markets indices, a significant part of the Dow Jones Emerging Markets Sector Titans Composite 100 Index is allocated financial services and energy names with those sectors combining for nearly 42% of AGEM’s weight.

The index is reflective of the valuation discounts currently seen on emerging markets equities with a trailing P/E ratio of 11.69. AGEM recently crossed its 50-day moving average, but is still 4.3% below its 200-day line.

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of EEM.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.