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Matt Hougan’s ‘Top 5’ ETF Picks For 2013



3) iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG)
AUM: $266.5 Million
Expense Ratio: 0.18 Percent

This isn't so much a market call as an ETF-specific call.

I'm a huge fan of the new iShares Core ETFs, as they offer solid exposure with ultra-low costs from a reputable issuer. I'm including IEMG in this "Top 5" list primarily for the benefit of investors who hold the iShares MSCI Emerging Markets Fund (NYSEArca: EEM).

Everyone and their mother have written about how IEMG is a better deal for the long-term investor than EEM, because it has an annual expense ratio of 0.18 percent compared to 0.67 percent for the old-school EEM. That's nice, but to me what matters is coverage: Unlike EEM, IEMG includes exposure to small-cap stocks in the emerging markets—the most exciting segment of that market and also the one with the lowest correlation to domestic stocks.

4) SPDR China ETF (NYSEArca: GXC)
AUM: $1.11 Billion
Expense Ratio: 0.59 Percent

Since we're talking emerging markets, let's talk about China. China's equity markets have been absolutely hammered over the past few years, and now look cheap. GXC is one of our favorite China ETFs; and it's vastly superior to the far-more-popular iShares FTSE China Large-Cap ETF (NYSEArca: FXI). The fund trades with a backward-looking price/earnings ratio of 11, and a forward-looking P/E below 10. With the new Chinese leadership pushing for increased foreign investment and stronger economic growth, China's woes could be behind it.

I wouldn't feel too strongly about this if I didn't think most investors were structurally underweight China in their portfolios. Due to free-float restrictions, China remains a bit player in global indexes. Even though it has the world's second-largest economy, it is only the ninth-largest country in most global indexes, trailing countries with smaller economies like France and Canada. Maybe you think France's future is more important to the global economy than China's, but I'm not so sure.

(Another solid option here is the iShares MSCI China Fund (NYSEArca: MCHI).

5) Global X Superdividend ETF (NYSEArca: SDIV)
AUM: $197.2 Million
Expense Ratio: 0.58 Percent

I often get accused of disliking any ETF that smacks of marketing-speak. And nothing smacks of marketing speak quite like the Global X SuperDividend ETF (NYSEArca: SDIV). Superdividends? It's like this ETF was designed for me to ridicule it.

And yet, I like it. The fund takes the 100-largest-dividend-paying companies in the world, adjusts slightly for dividend sustainability and pays an 8-plus percent yield. If you're looking for equity income, you could do worse.

The majority of assets invested in dividend-weighted ETFs is invested in domestic funds. But there are no domestic high-yield equity ETFs paying out more than 5 percent these days. Moreover, with the hangover from 2013's dividend accelerations in the United States, I wonder if even the current levels will stick.

Go international and you avoid any 2013 hangover and pick up substantially higher yields. The fund has a low beta to the market, reasonable liquidity and could be a nice fit in a portfolio.


So there you go: Five ideas. There were others that almost made the list: including the Pimco Total Return ETF (NYSEArca: BOND), the iShares MSCI Turkey Fund (NYSEArca: TUR), the PowerShares Fundamental High Yield Corporate Bond Portfolio (NYSEArca: PHB), among others.

But CNBC doesn't give you much time, so I had to cut it to five.

Even that may be too many: After all, I only own one of these ETFs, DXJ—the currency-hedged Japan ETF. So take the others with a grain of salt. In fact, take DXJ with a grain of salt too.

To state the obvious, there's a reason I index the vast majority of my portfolio. You probably should too.

Contact Matt Hougan at



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