3 Emerging Market ETFs That Soared In 2014

To everybody’s surprise, this year started off with most emerging markets regaining their ground lost in 2013 due to ‘taper tantrums’. In fact, some of these markets proved huge contributors to global recovery (Read: 3 International ETFs Beating SPY This Year)

Developing nations were assisted by a number of factors in this time period that helped them to weather QE fears, and issues regarding European growth. Chief among these positive factors were pro-growth political reform in some nations like India and Indonesia, easing volatility in currency, a rapid pace of industrialization and urbanization and an ultra-low interest rate environment, all of which contributed to solid growth levels for many nations.

However, all EM nations have not performed satisfactorily as commodity-centric nations became the victims of the commodity crash which may arguably still be witnessing now. The broader emerging market ETFs Vanguard Emerging Markets ETFs (VWO) and iShares Emerging Markets ETF (EEM) are down more than 3% this year and many have fared even poorer.
Still, there are some bright spots sizzling with optimistic political changes and favorable fundamentals, and promise the same trend even in 2015. These country ETFs have posted stellar returns this year (read: 4 Emerging Market ETFs to Consider for Q4).
This was in stark contrast to the renewed deflationary worries in the Euro zone and Japan, prolonged slowdown in the biggest emerging market China and crash in the two pillars of BRIC nations – Brazil and Russia. Below we highlight those markets that impressed this year, and the ETFs that track these markets as well:
India – MSCI India Small Cap Index Fund (SMIN
The Indian market has found many events to celebrate this year including the much-anticipated win of the pro-growth leader Narendra Modi in May, robust corporate earnings, drastic decline in inflation helped by the unbelievable decline in global oil prices and a stable currency despite the ascent of the greenback (read: Yet Another Reason to Buy India ETFs Now).
Economically, things are just falling in place for India which in turn took the related ETFs to great heights. All India ETFs returned impressively this year with SMIN topping the list. It is such an ETF with about one-fourth of assets invested in the financial sector. Consumer discretionary takes the next spot with about 20% exposure.
Moreover, tapping a small-cap ETF is surely a decent bet in the current context as these pint-sized stocks normally revolve around the domestic economy and is less exposed to global events. SMIN – a Zacks #2 (Buy) ranked ETF with a High risk outlook ─ is up 40% year to date and is the best performing emerging market ETF so far this year.
Investors should note that other India ETFs like India Small Cap ETF (SCINX),India Small-Cap Index ETF (SCIF), S&P India Nifty Fifty Index Fund (INDY) and India Earnings Fund (EPI) have advanced about 36.5%, 30.6%, 22.5% and 20.5%, respectively.

Philippines  iShares MSCI Philippines Investable Market Index (EPHE)

This often overlooked market could be an intriguing bet with Europe still dubious and China waning. The Philippines economy grew at the rate of 7.2% in 2013, the fastest pace since 1950. Though its Q3 growth rate has slowed to 5.3%, the rate is quite decent as compared to that of several developed markets (read: Strong Q2 Growth Puts Philippines ETF in Focus).   
Strong consumption which makes up close to 70% of the economy, investments, exports and accelerating infrastructure projects are expected to be the key drivers. Per IMF, the nation’s GDP will expand at the rate of 6% each year on average until 2019, representing its best rally since 1950’s. The nation is also a beneficiary of the commodity crash as mineral fuels form roughly 20% of the country’s total imports.
This calls for a look at EPHE. This product targets Philippines stocks in the emerging Asia Pacific space, charging 61 bps in fees. The fund holds a small basket of 43 firms, with roughly 60% of assets invested in the top 10 holdings, suggesting a high concentration risk.
More than one-third of the portfolio is dominated by financials while industrials occupy the second position with 22.4% share. The fund – a Zacks #3 (Hold) ranked ETF with a Medium risk outlook ─ is up 20% year to date (as of December 16, 2014).
Indonesia – iShares MSCI Indonesia Investable Market Index Fund (EIDO)
Like India, Indonesian stocks have also capitalized on the new president’s reforms that are likely to fuel the presently sagging economy. Though the Southeast Asia’s largest economy is now way behind from being called better positioned, it is expected to grow a decent 5.1% rate this year, albeit at the slowest clip in five years, per Bloomberg’s estimate.
Weak currency, widening current account deficit and rising inflation are still wrecking havoc on the nation presently, leading EIDO to lose about 7.5% in the last five days. Still, political hopes have helped the ETF to return about 11% so far this year.
This is one of the most popular ETF tracking the Indonesian market with AUM of $617.4 million. It holds 102 securities with a tilt toward large caps and charges 61 bps in annual fees. The top two firms account for nearly 10% of the total assets each while from a sector look, financials dominates the fund’s return with more than one-third share. The ETF has a Zacks ETF Rank #2 (Buy) with High risk outlook.

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