Invest Like Mark Mobius Using Exchange-Traded Funds

October 28, 2009

In Part 2 of a series, we show how to mimic the legendary emerging market investor's portfolio.


When caught up with Franklin Templeton’s Mark Mobius a week ago, it was impossible not to pick up on the legendary emerging market fund manager’s enthusiasm for Russia and
Eastern Europe. While the Latvian currency crisis has raised the perceived risk profile of the region, argued Mobius, in reality, equities there are no more unstable?but they are potentially a lot more profitable?than elsewhere in the world.

“It’s true that the [Eastern European] economy has seen an incredible shrinkage recently, but next year there’s going to be a pretty strong recovery,” said Mobius in the interview, which you can read in full here. “If you look at our portfolio, you will see China right at the top, followed by India, but it’s
that will continue to come up next year.”

Mobius runs about $1 billion in Eastern European equities for Franklin Templeton’s Eastern Europe Fund. So far, performance has been strong, but not as bullish as for other emerging or frontier markets, many of which have more than doubled in the last year. While the fund was flat for the year at the end of September, it was posting gains of 84 percent year-to-date.

For investors who don’t want to stomach the fund’s 2 percent annualized fee, and the 5 percent initial charge, there are a number of opportunities in the ETF space right now that can help investors to mimic Mobius’ performance.

Eastern Europe Using ETFs: Choose Wisely

There are five exchange-traded choices available for investors interested in investing in the region:

  • The SPDR S&P Emerging
    Europe Fund (NYSEArca: GUR)
  • The recently launched MSCI Emerging Markets Eastern Europe Index Fund (NYSEArca: ESR)
  • The Market Vectors
    ETF (NYSEArca: RSX)
  • The closed-end DWS Central Europe and Russia Fund (NYSEArca: CEE), actively managed by Deutsche Bank
  • The iShares MSCI Turkey ETF (NYSEArca: TUR)

Given their relatively similar focuses, the funds have surprisingly different performances. GUR is the slowest performer year-to-date, showing 77 percent in gains; TUR comes in second place, with a 90 percent return; CEE comes in third, delivering 103 percent returns; while RSX leads the pack, having surged 130 percent this year. (ESR is still too new to make a meaningful comparison, but it has gotten off to a decent start.)

The first thing that stands out when you glance at Franklin Templeton’s Eastern Europe Fund is the sizable over- and underweighting of different countries relative to the MSCI Emerging Markets Eastern Europe Index. Three prominent examples can be found among Russia, Turkey and
. While the Index is 62 percent weighted in
, Mobius allocates just 27.3 percent of his portfolio in the country’s equities. Meanwhile, he doubles the index’s allocation to Hungary and

In terms of the fund’s sector focus, banks and energy constitute around 50 percent of assets under management, while pharma and telecoms make up a chunky 21 percent of the fund. That strategy makes sense for investors who are aggressively pursuing growth in the region, while still remaining defensive, according to Anna Kupriyanova, a senior analyst at Uralsib in

“[Financials and raw materials] have been affected most since the start of the crisis; hence you should expect the most recovery in volumes here,” Kupriyanova told in an interview. “Industries such as health care and transport were less affected, so the recovery will also be less in 2010. I definitely think telecoms is one of the best defensive segments.”

In that sense, despite its relatively poor performance vs. its peers this year, GUR looks like an interesting bet going into 2010. GUR has returned about the same as Mobius’ fund year-to-date (77 percent), and has a 21 percent weighting in financial services companies such as
’s Sberbank Rossii and Turkish Turkiye Garanti Bankasi, as well as a 40 percent sector focus in energy.


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