Emerging Market Crisis: 5 ETFs Down Over 30% In 2015

Thanks to rate hike concerns and a prolonged weakness in commodities, emerging markets have been struggling since the start of this year. The woes deepened in the second half when non-stop worries ranging from the China turmoil, to weak global growth and falling exports gripped the stock market globally. Additionally, sluggish emerging market currencies, a strong U.S. dollar, and falling oil prices are posing major threats to these stocks.

Further, back-to-back solid job gains in the past couple of months have lift the chances of the Fed pulling its trigger on the first rate hike in almost a decade, as early as in two weeks. This has raised worries over the emerging markets, which were the worst hit by the taper tantrum of 2013 that resulted in a huge capital flight. This is because 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 (read: 5 Broader Emerging Market ETFs Surging This Quarter).
Year to date, the two most popular ETFs – iShares MSCI Emerging Markets ETF (EEM - ETF report) and Vanguard FTSE Emerging Markets ETF (VWO - ETF report) – have seen huge outflows of nearly $7 billion and $2.6 billion, respectively. The bearish trend is expected to persist in the months ahead should the twin attacks of interest rate hike and lower commodity prices be encountered. As per Bloomberg, emerging market funds are on track to post the first annual net outflow in 27 years.

As per the International Monetary Fund (IMF), emerging markets and developing economies will likely see slower growth in 2015 for the fifth consecutive year with deep recession in Brazil and Russia. The agency cut the growth outlook by 0.2% each for this year and the next to 4% and 4.5%, respectively. Brazil is expected to contract 3% this year and 1% in the next while Russia will shrink 3.8% this year and 0.6% in the next. However, India remains the bright spot with expected growth of 7.3% and 7.5% for this year and the next, respectively (read: Top-Ranked ETFs to Tap India's Growth Story).  

Given the huge outflows and the pessimism over emerging market growth, the appeal for these ETFs has dampened, pushing most of the ETFs deep into the red territory from a year-to-date look. Below, we have highlighted those ETFs that are down more than 30% in the year-to-date timeframe:  

iShares MSCI Colombia Capped ETF ((ICOL - ETF report))

This fund tracks the MSCI All Colombia Capped Index, holding 31 stocks in its basket. It is heavily concentrated on the top two firms – Bancolombia and Grupo De Inversiones Suramericana – that combine to make up for 18.5% share while other firms do not hold more than 6.43% of assets. Financials dominates the fund’s return at 37 while utilities, materials, energy and consumer staples round off the top five with double-digit exposure each. The product has been able to manage assets worth $12.5 million and trades in a light volume of around 10,000 shares per day. Expense ratio came in at 0.61%. ICOL was down 47.3% and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.

iShares MSCI Brazil Small-Cap ETF ((EWZS - ETF report))

This product provides targeted exposure to the Brazilian small-cap stocks. It follows the MSCI Brazil Small Cap Index, charging investors 62 bps in fees per year. The fund holds 53 stocks in its basket with none holding more than 5.03% of assets. From a sector look, consumer discretionary takes the top spot at 39.7%, followed by double-digit exposure each in industrials, consumer staples and financials. The ETF has amassed $26.4 million in its asset base while trades in lower volume of 39,000 shares a day on average. It has lost 46.2% so far in the year and has a Zacks ETF Rank of 5 or ‘Strong Sell’ with a High risk outlook (read: Brazil Stocks, ETFs Ignore Slump: Rally on Rousseff Issues).
Market Vectors Indonesia Small-Cap ETF (IDXJ - ETF report

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