Single-Country Consumer Funds
Investors looking to get more focused exposure have some options with single-country ETFs (Figure 4). Of course, local political and macroeconomic issues in each country will play a larger role in their returns compared with a diversified emerging-consumer ETF.
China's mission to reorient its economy from an export- to consumption-led model is well known. Luckily for ETF investors, there's an ETF that specifically targets Hong Kong- and U.S.-listed Chinese consumer companies.
The Global X China Consumer ETF (CHIQ | B-33) is the largest of these niche consumer ETFs, with more than $110 million in assets. For 65 basis points, CHIQ offers 40 securities from the cyclical and non-cyclical sectors.
The Global X Brazil Consumer ETF (BRAQ | F-42) offers roughly 40 securities from both consumer sectors in Brazil. BRAQ hasn't quite caught on with investors, and has only $8 million in assets, so we see risk of fund closure.
Finally, investors expecting reforms from newly elected India Prime Minister Narendra Modi to trickle down to the Indian consumer can focus on the EGShares India Consumer ETF (INCO | F-39). INCO is highly concentrated, holding only 30 companies from both consumer sectors. Of the three single-country consumer ETFs, INCO's been the best performer by a long shot over the past year.
Emerging markets hit a snag in 2014 for a number of reasons, including the end of quantitative easing in the U.S., a rising dollar, plunging commodity prices and rising local interest rates. Emerging-consumer ETFs certainly weren't immune to these negative forces.
But for long-term emerging market investors, the emerging consumer continues to look attractive. That said, it's imperative to understand the differences between the current offerings, particularly the broad-based approaches where the differences in exposure can be subtle.
For a pure play on the largest emerging-consumer companies, ECON fits that bill. Just keep in mind its higher valuations and volatility, which may be caused in part by its concentrated portfolio.
For a more diversified, less volatile play, EMCG may be fitting, as it casts a wider net across different sectors beyond just the traditional cyclical and noncyclical consumer sectors. Finally, EMDI provides pure cyclical exposure for those looking to tap directly into the discretionary spending habits of the emerging consumer.
There are many different ways to slice and dice this exciting growth theme. Once you figure out whether you want to go broad or focus on a single country, and which sectors you're interested in targeting, the right choice for your investment objective should be easily narrowed down.