While the global stock market has been on a stellar ride this year, emerging markets are stealing the show after years of underperformance. In fact, the emerging market stocks are enjoying the longest rally since 2004 and the trend is likely to continue (read: EM ETFs: What You Need to Know Before Investing).
Inside The Surge
This is primarily because of improving economic growth in a number of parts of the developing world, a pickup in manufacturing activity, a rebound in commodity prices, better current accounts, better-than-expected earnings, easing policies, sector-specific reforms, growth policies and of course cheap valuation. Per a Bloomberg article, emerging market stocks are valued at P/E ratio of 13.64 versus 17.32 for the developed market.
The surge in the technology sector and among Chinese giants, a weaker greenback, and threats of political uncertainty in the United States have added to the strength. Further, the cautious stance of the Fed on future rate hikes continues to instill confidence in the emerging markets (read: If Dollar Remains Weak, Bet on These ETFs & Stocks).
If these weren’t enough, investors have been pouring money into emerging market ETFs. Two ultra-popular emerging market ETFs — Vanguard FTSE Emerging Markets ETF VWO and iShares MSCI Emerging Markets ETF EEM — pulled in $7.5 billion and $2.6 billion, respectively, so far this year.
While many emerging market ETFs have been performing remarkably well, we highlight five funds that are leading the space from a year-to-date basis. These are also expected to continue outperforming, provided the fundamentals remain intact.
KraneShares CSI China Internet ETF KWEB – Up 61.8%
This ETF is benefiting from the dual tailwinds of emerging market lead and a surge in the technology sector. It provides a concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 35 securities in its basket with heavy concentration on the top three firms. The technology sector makes up for a substantial 60% of total assets, while consumer discretionary takes the remainder with just 2.5% allotted to industrials. The ETF has amassed $936.5 million in its asset base and charges 72 bps in annual fees from investors. KWEB has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Here's Why International ETFs Continue to Outperform?).
WisdomTree China ex-State-Owned Enterprises Fund CXSE – Up 58.7%
This 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 135 securities in its basket, the fund is largely concentrated on the top two firms at nearly 9% while others make up for no more than 6% share. Information technology and consumer discretionary take the top two spots at 34.5% and 23.9%, respectively, from a sector look, followed by financials (15.7%) and real estate (7.6%). The product has been able to manage $32.1 million in its asset base and has a Zacks ETF Rank of # 2 (Buy) with a Medium risk outlook.
iShares MSCI Brazil Small-Cap ETF EWZS – Up 58.4%
This ETF provides targeted exposure to the Brazilian small-cap stocks by tracking MSCI Brazil Small Cap Index. The fund holds 63 stocks in its basket with none holding more than 5.7% of assets. From a sector look, consumer discretionary takes the top spot at 38.9%, followed by double-digit exposure each in utilities, materials and industrials. The fund charges investors 63 bps in fees per year and has accumulated $65.9 million in its asset base. It has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
Emerging Markets Internet & Ecommerce ETF EMQQ – Up 57%
This ETF targets the Internet and e-commerce sectors of the developing world by tracking the Emerging Markets Internet & Ecommerce Index. Holding 45 securities in the basket, it is concentrated on the top two firms with more than 8% share each. Chinese firms account for the lion’s share with 64%, while South Korea, Russia and South Africa make up for a decent exposure. The product has accumulated $273.2 million in its asset base and charges 86 bps in annual fees. It has a Zacks ETF Rank #3 with a Medium risk outlook (read: Top Emerging Market ETFs of First Half 2017).
VanEck Vectors Poland ETF PLND – Up 55.8%
This product targets the Polish stock market by tracking the MVIS Poland Index. It holds 28 stocks with each holding no more than 7.6% of assets. Financials dominate the fund return at 39%, while energy and materials round off the top three spots. The product has amassed $20.8 million in AUM and charges 60 bps in annual fees. It has a Zacks ETF Rank #3 with a Medium risk outlook.
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ISHARS-EMG MKT (EEM): ETF Research Reports
WISDMTR-TR WTCH (CXSE): ETF Research Reports
VANECK-POLAND (PLND): ETF Research Reports
ISHARS-MS BR SC (EWZS): ETF Research Reports
EM-INTRNT&ECMRC (EMQQ): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
KRANS-C CHN INT (KWEB): ETF Research Reports
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