Assessing Emerging Market ETFs

May 06, 2019

In the past 12 months, a lot has happened in emerging market ETFs. From launches to interesting pockets of performance, emerging markets have offered something for everyone.

For starters, the segment has welcomed 29 new ETF launches—more than a 10% jump in the number of products now available to investors looking to access the region.

From factor approaches in newcomers such as the John Hancock Multifactor Emerging Markets ETF (JHEM) and the Fidelity Targeted Emerging Markets Factor ETF (FDEM), to China sector-specific MSCI-linked portfolios from Global X, to the debt-focused Invesco Emerging Markets Debt Defensive ETF (IEMD), the list of new tickers is as diverse as the portfolios behind them.

The segment is also serving up notable performance, especially in more focused strategies. To many, the “easy button” investment of choice when it comes to emerging markets is broad, super liquid portfolios such as the $65 billion Vanguard FTSE Emerging Markets ETF (VWO) and the $61 billion iShares Core MSCI Emerging Markets ETF (IEMG).

These funds are big, liquid, cheap and offer broad portfolios with thousands of securities each. Year-to-date, these hugely popular ETFs have ranked relatively low in total gains in a universe of 220-plus ETFs, delivering approximately 14% in the period.

 

 

That performance ranking includes leverage and inverse strategies, which tilts top gainers toward leveraged 2x and 3x bets. Still, broad strategies haven’t done as well some more focused strategies. Consider that the country-diverse Emerging Markets Internet & Ecommerce ETF (EMQQ)—a broad strategy focused on the technology sector—has delivered more than 31% in gains this year.

China ETFs Leading The Way

The best example of outsized gains relative to the giants is that more than a dozen China-focused ETFs have led performance charts this year, delivering more than twice the returns of IEMG and VWO. Buoyed by persistent hope that the multimonth U.S.-China trade war is coming to a resolution, Chinese equities have soared, making China the best-performing emerging market this year.

Coming into this week, all eyes were on the U.S.-China talks expected to take place in Washington, D.C.. that could lead to a trade deal by Friday. 

The Global X MSCI China Consumer Staples ETF (CHIS) is up 36.5%; the Global X MSCI China Information Technology ETF (CHIK) is up 34%; the KraneShares CICC China Leaders 100 Index ETF (KFYP) is up 33.4%. The list goes on.

 

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