U.S. Markets open in 9 hrs 21 mins

PIE: An Emerging Markets ETF Juggernaut


Well documented is the fact that some the largest, most popular emerging markets ETFs have struggled in 2013. The Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets Index Fund (EEM) , the two largest developing markets ETFs by assets, are lower by 2.7% and 3.9%, respectively, this year. [Emerging Markets ETFs Down But Not Out]

However, not all diversified ETFs tracking developing world equities have been laggards. In fact, the PowerShares DWA Emerging Markets Technical Leaders Portfolio (PIE) has been a star, soaring over 13% since the start of the year.

PIE, which debuted in late 2007, tracks the Dorsey Wright Emerging Markets Technical Leaders Index. That index focuses on technical factors, including relative strength, and that it sets it apart from traditional cap-weighted indexes such as the ones VWO and EEM track. And it is the focus on relative strength that helps explain PIE’s out-performance of its larger rivals. [Best Emerging Markets ETFs]

“Every quarter the index looks through more than 2,000 emerging market stocks and picks the 100 that have performed the best relative to the group over the past six to 12 months. That’s a wildly different approach from that taken by VWO and EEM. Those are traditional market-cap-weighted ETFs, in which the largest stocks in a group dominate the index,” reports Eric Balchunas for Bloomberg.

The result is dramatically different country weights in PIE compared to its rivals. For example, China, South Korea, Brazil and Taiwan combine for over 56% of EEM’s country weight. That has not been a good thing in 2013 when three of the four largest largest ETFs tracking those countries are in the red. Only the iShares MSCI Taiwan Index Fund (EWT) is higher year-to-date.

On the other hand, PIE’s top four country weights are Indonesia, Thailand, Mexico and Turkey, combing for just over half of the ETF’s weight, according to PowerShares data. The worst-performing country ETF of that group is the iShares MSCI Mexico Capped Investable Market Index Fund (EWW) , which is up 3.4% this year.

PIE’s trouncing of its rivals is nothing new. As Balchunas reports, “PIE’s outperformance extends back historically. If you go back three years, it’s up 52.3%, compared to 15.6% for VWO and 14.1% for EEM. And its dominance extends beyond those two peers. When stacked up against the 44 other emerging market equity ETFs, PIE is No. 1 in year-to-date performance, with a 14.5% return” according to Bloomberg data.

Investors are taking note. Since the start of May, PIE has seen $51.1 million in inflows, or just under 10% of its current assets total of $529.7 million, according to Index Universe data.

PIE is not perfect. Its 0.9% expense ratio is far higher than what is found on VWO and EEM. Not to mention PIE’s paltry trailing 12-month dividend yield of 0.61%. However, those sacrifices might be worth making if BRIC and other large emerging markets continue to lag.

ETF Trends editorial team contributed to this story.

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.