Tag Archives: emerging

A Popular ETF Play To Be Wary Of

Summary Emerging market stocks and funds have been struggling this year. Many remain pessimistic about the emerging market’s prospects. Nevertheless, some are betting on a turnaround after the selling pressure through leveraged funds. By now, most investors know that emerging markets exchange traded funds and the stock those funds hold have struggled this year. Yet with the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) , the two largest emerging markets exchange traded funds by assets, each down more than 8% this year, rushing to short emerging markets at this juncture may be a case of being too late to a crowded party. Some fund managers believe it will be a while before emerging markets stocks recover in earnest. Investors pulled out of riskier emerging markets as data showed growth from China’s economy slowed, commodity prices fell and the Federal Reserve signaled an interest rate hike this year. The China slowdown is fueling the lower commodity prices and lower outlook for other major emerging economies. Moreover, rising borrowing costs, a stronger dollar and rising corporate debt loads, with the International Monetary Fund warning of corporate defaults, are adding to volatility. “Bank of America Merrill Lynch surveyed more than 200 ‘asset allocators’ in the first week of October. When asked what they thought was the most crowded trade, they said shorting emerging markets, more so than in a September survey. More also viewed shorting emerging market currencies as a crowded trade this month,” reports Dimitra DeFotis for Barron’s . According to a monthly fund manager survey from Bank of America Merrill Lynch, exposure to emerging market stocks remained at a record low, reports Dhara Ranasinghe for CNBC . However, after investors dumped the emerging markets this year, developing country stocks now appear more attractive, especially for long-term investors. Traders of leveraged ETFs have been more comfortable being short emerging markets than long. For example, the ProShares Ultra MSCI Emerging Markets ETF (NYSEArca: EET ) has lost more than $2 million in assets this year while the ProShares UltraShort MSCI Emerging Markets ETF (NYSEArca: EEV ) has seen inflows north of $33 million. ProShares UltraShort MSCI Emerging Markets ETF (click to enlarge) Tom Lydon’s clients own shares of EEM . Share this article with a colleague

Emerging Market ETFs Slip To 52-Week Lows

Emerging markets have been out of investors’ 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 due to slow economic growth, China turmoil, low commodity prices, falling exports, sluggish currencies, strong dollar, rising Treasury yields, and a looming interest rate 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 an interest rate 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. SPDR S&P Emerging Markets Dividend ETF (NYSEARCA: 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 an 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 towards 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 ETF (NYSEARCA: 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 (NYSEARCA: EEM ) It is the most popular and widely traded emerging market ETF with an 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 towards 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 (NYSEARCA: 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 an AUM of $43.8 million and an 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. Original post

A Return To Emerging Market ETFs

More investors are turning to the emerging markets. Emerging markets look relatively cheap compared to U.S. equities. What’s supporting the emerging market investment theme. While developed markets languished, investors turned to emerging markets and related exchange-traded funds for a cheaper play on global markets. Emerging equities are outperforming developed markets. Year-to-date, the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) rose 1.1% and the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) increased 1.6%, whereas the SPDR S&P 500 ETF (NYSEARCA: SPY ) dipped 1.8%. According to the Institute of International Finance, investors funneled $18 billion into emerging market stocks and bonds over January, reports Carolyn Cui for the Wall Street Journal . While EEM and VWO experienced heavy outflows , some areas drew heavy inflows. For instance, the iShares MSCI India ETF (BATS: INDA ) added $617.2 million in assets, iShares MSCI Taiwan ETF (NYSEARCA: EWT ) saw $172.0 million in inflows and the Market Vectors Emerging Markets Local Currency Bond ETF (NYSEARCA: EMLC ) experienced $148.4 million in inflows, according to ETF.com data. As the developed markets stumbled at the start of the new year, investors turned to other global opportunities that could generate improved returns, following the rally in developed-market equities and fixed-income assets last year. “Emerging markets are one of the few bargains out there in an increasingly expensive world,” Jeffrey Kleintop, chief global investment strategist at Charles Schwab Corp., said in the article, arguing that the low valuations could provide “some sort of buffer” when volatility spikes. For instance, EEM shows a price-to-earnings ratio of 12.1 and a price-to-book of 1.5, VWO has a 12.3 P/E and a 1.6 P/B. In contrast, SPY shows a 17.3 P/E and a 2.5 P/B. The cheap raw materials and commodities prices will help fuel emerging market growth at a faster pace than developed economies. For example, India is well positioned to benefit from cheap oil prices as the country is a prominent energy importer. Meanwhile, countries like Taiwan can benefit from the U.S. recovery as the island country is the 12th largest goods trading partner with the U.S. as of 2013 data . Moreover, the added global liquidity, with the European Central Bank adopting a €1 trillion, or $1.3 trillion, quantitative easing program , could push investors toward emerging markets to chase after higher returns. Investors who are concerned about the continued strength in the U.S. dollar and its effect on emerging market exposure can also consider the recently launched iShares Currency Hedged MSCI Emerging Markets ETF (NYSEARCA: HEEM ) and the Deutsche X-trackers MSCI Emerging Markets Hedged Equity Fund (NYSEARCA: DBEM ) , which is three years old, to track developing markets while hedging against forex risks. Max Chen contributed to this article . Tom Lydon’s clients own shares of EEM and SPY. Disclosure: The author is long EEM, SPY. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.