Q3 Casts Poor Light On Indonesia ETFs

October 02, 2013

ETFs related to the country saw steep slides in the third quarter, while solar funds surged.

International equity ETFs were some of the best-performing funds in the third quarter, particularly those tapping into alternative energy, Internet stocks and China. But perhaps it's Indonesia that stands out in the three-month period, with funds tapping into that country ranking among the quarter's worst performing strategies.

The Market Vectors Indonesia Small Cap ETF (IDXJ | F-36) was a leader in ETF losses, bleeding 29.2 percent in the past three months, while funds like the iShares MSCI Indonesia ETF (EIDO | B-98) and the Market Vectors Indonesia ETF (IDX | B-84) each slid 24 percent and 20 percent, respectively, in the period, according to data compiled by IndexUniverse.

Indonesia has been struggling with slowing economic growth, which dipped below 6 percent this year for the first time in three years, and a widening current account deficit, all the while its currency—the rupiah—has slipped more than 16 percent against the dollar year-to-date, falling to four-and-a half-year lows.

The weakness of the currency has hurt equity holdings, particularly for U.S. investors. For instance, in the past three months, local Indonesian investors lost about 5.5 percent in their Indonesian equity holdings while U.S. investors lost about 19 percent, with the huge difference linked to a plummeting rupiah.

That weak performance could suggest that Indonesian equities might emerge as a prospective value play down the road, but as of now, the market is still not cheap from a valuation standpoint, Accuvest's managing director David Garth told IndexUniverse. On the contrary, Indonesian equities are trading at 15.8 times trailing earnings and 12.8 times forward earnings, levels that are "very close to average versus the rest of the countries out there," he said.

"Indonesian fundamentals are good," said Garth, whose firm puts together asset allocation plans using single-country ETFs. "However, valuations are not cheap, risks are high and momentum is poor."

"To make money in Indonesia, you really have to have a bounce that may or may not happen in the short run," Garth said.

It's worth pointing out that none of these data points—such as total return and currency impact on returns—have any particular significance for a long-term index investor who plans to hold on to these ETFs. These performances and currency-related losses don't become real until investors sell or rebalance those positions.

On the upside, the third quarter was good for solar energy ETFs—the Guggenheim Solar ETF (TAN | B-35) and the Market Vectors Solar Energy ETF (KWT | C-34) each saw total returns of 45 percent and 36 percent, respectively, in the three-month period.

The third best-performing ETF in the quarter was the PowerShares Golden Dragon China ETF (PGJ | B-26), with gains of 36 percent. PGJ's performance is, in a way, a reflection of the strong momentum in technology and Internet stocks globally.

Still, the key to PGJ's massive outperformance is the fund's focus on U.S.-listed Chinese securities, Dennis Hudachek, IndexUniverse ETF analyst said in a recent blog.

"If you look under the hood, you'll notice that seven of the top 10 holdings are major Chinese Internet firms that make up close to 50 percent of its weighting, even though it excludes Hong Kong-listed Tencent," he said.

Top Performers Q3 2013 (Excluding Leveraged & Inverse)

Ticker Name Q3 Net Flows ($,M) Q3 AUM ($,M) Q3 TRR (%) Issuer Asset Class
TAN Guggenheim Solar 57.64 229.87 45.04 Guggenheim International Equity
KWT Market Vectors Solar Energy 0.00 19.46 36.42 Van Eck International Equity
PGJ PowerShares Golden Dragon China 35.53 283.82 36.41 Invesco PowerShares International Equity
SOCL Global X Social Media 41.01 54.94 31.33 Global X International Equity
EGPT Market Vectors Egypt 3.51 42.51 29.89 Van Eck International Equity
CQQQ Guggenheim China Technology 11.08 35.82 27.26 Guggenheim International Equity
GREK Global X FTSE Greece 20 6.16 62.11 27.03 Global X International Equity
QQQC Global X NASDAQ China Technology 4.02 8.04 26.64 Global X International Equity
PNQI PowerShares NASDAQ Internet 80.87 175.57 26.59 Invesco PowerShares U.S. Equity
EWP iShares MSCI Spain Capped 191.39 558.41 24.97 BlackRock International Equity

Bottom Performers Q3 2013 (Excluding Leveraged & Inverse)

Ticker Name Q3 Net Flows ($,M) Q3 AUM ($,M) Q3 TRR (%) Issuer Asset Class
VIXY ProShares VIX Short-Term 50.353128 171.06 -29.32 ProShares Alternatives
IDXJ Market Vectors Indonesia Small Cap -0.80999 5.00 -29.28 Van Eck International Equity
VXX iPath S&P 500 VIX Short-Term Futures ETN 688.74446 1,454.53 -29.06 Barclays Capital Alternatives
VIIX VelocityShares VIX Short Term ETN -1.256193 13.38 -29.06 VelocityShares Alternatives
EIDO iShares MSCI Indonesia -18.078 378.63 -24.73 BlackRock International Equity
IDX Market Vectors Indonesia -43.453475 232.86 -20.76 Van Eck International Equity
VIXM ProShares VIX Mid-term 39.779215 96.76 -18.07 ProShares Alternatives
VIIZ VelocityShares VIX Mid Term ETN -4.077065 1.31 -18.03 VelocityShares Alternatives
VXZ iPath S&P 500 VIX Mid-Term Futures ETN -5.0801551 48.87 -18.03 Barclays Capital Alternatives
SCIF Market Vectors India Small-Cap 5.22263 88.18 -14.19 Van Eck International Equity


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