U.S. Markets close in 1 hr 8 mins

Overlooked Asia-Pacific ETF is Winning


Exchange traded funds offering access to Asia-Pacific equities have, broadly speaking, been solid performers this year. That holds true for ETFs that focus on the region’s developed markets as well as emerging Asia-Pacific fare.

The oft-overlooked SPDR S&P Emerging Asia Pacific ETF (GMF) resides in the latter category. GMF’s unheralded status belies the ETF’s size and an impressive 2014 performance. The $491.3 million ETF is up 12.7%, well ahead of the 10.8% average year-to-date gain for the iShares MSCI Emerging Markets ETF (EEM) and the Vanguard FTSE Emerging Markets ETF (VWO) , the two largest emerging markets ETFs by assets.

Seven emerging Asian countries are represented in GMF, led by a 36.3% weight to China. The others are Taiwan, India, Malaysia, Indonesia, Thailand and the Philippines. There is a noticeable absence on that list: South Korea.

The reason for that is GMF tracks the S&P Asia Pacific Emerging BMI Index and Standard & Poor’s considers South Korea to be a developed market while some rival index providers still classify Asia’s fourth-largest economy as an emerging market. [No DM Upgrade for South Korea]

The lack of South Korea exposure has worked in GMF’s favor this year. The iShares MSCI South Korea Capped ETF (EWY) is up 4.4%, but of the countries represented in GMF, only Malaysia has a major U.S.-listed single-country ETF that has lagged EWY. [Malaysia's Momo Wanes]

“Incongruous economic expansionary trends of Asian developing markets render selectivity an all-important consideration in deciding which ones in the area to favor. China, in light of its superior economic outlook, is one example as is Philippine, South Korean, Taiwanese stock markets. Indonesia merits a neutral emphasis pending the outcome of the presidential election and India earns the same until Prime Minister Narendra Modi fully discloses his policy plans. Malaysia, Singapore and Hong Kong are neutral too. Policy uncertainties following the military coup compel us to minimize Thai stock holdings,” said S&P Capital IQ in a new research note.

S&P Capital IQ has a marketweight rating on GMF.

At the sector level, technology and financial services names dominate GMF, combining for 52% of the fund’s weight. Those are the only sectors to receive double-digit weights in the ETF. While the combination of large China exposure and a hefty financial services weight may imply excessive exposure to state-run banks, GMF uses an almost equal-weight approach so no individual holding accounts for more than 4% of the ETF’s weight. [Equal-Weight With Emerging Markets ETFs]

The fund also offers exposure to some of the more glamorous large-cap tech names, including Tencent and Baidu (BIDU), China’s largest Internet and Internet search firms, respectively. Taiwan Semiconductor (TSM), a major parts supplier to Apple (AAPL), is GMF’s largest holding.

SPDR S&P Emerging Asia Pacific ETF



Tom Lydon’s clients own shares of Apple and EEM.