Best & Worst Performing Emerging Market ETFs

Emerging markets as an asset class are up this year, but country-specific returns vary widely.

It’s been a wild ride for emerging markets (EM) this year. After starting 2019 with a bang, the world’s largest EM fund, the $61.6 billion Vanguard FTSE Emerging Markets ETF (VWO), was suddenly caught reeling.

VWO’s stellar year-to-date gain of 15.7% in April turned into a much more modest 4.6% gain in May, before rebounding slightly to 6.7% currently.

The rival iShares Core MSCI Emerging Markets ETF (IEMG), with $56.8 billion in assets, followed a similar path this year—a hot start followed by a recent retrenchment.

YTD Returns For VWO, IEMG

Emerging markets, of course, haven’t been immune from the worries that have rattled global markets during the past several weeks. The U.S.-China trade war remains front and center in investors’ minds. Add on top of that fresh concerns about the U.S.-Mexico trade relationship, and you have a recipe for fear, uncertainty and doubt, which gives investors pause.

It doesn’t help that China and Mexico are both EMs; understandably, that fact has dampened appetite for the asset class. Yet when you break down this year’s EM returns, you get some surprising results.

China ETFs Surprise

Perhaps the biggest surprise is that, despite being ground zero for the most consequential trade war in decades, Chinese stocks are actually doing quite well this year.

In fact, eight of the top 10 best-performing EM ETFs are China funds. That includes the Global X MSCI China Consumer Staples ETF (CHIS), up 26.92%; the CSOP FTSE China A50 ETF (AFTY), up 23.8%; and the KraneShares CICC China Leaders 100 Index ETF (KFYP), up 20%.

Best Performing EM ETFs Of 2019 (ex. leveraged/inverse)

Note: Data measures total returns for the year-to-date period through June 5

Sure, these ETFs were up even more in April—as much as 38%—but the fact that China ETFs are outperforming to such a strong degree in the face of such negative news flow is pretty impressive.

Analysts point to relatively cheap valuations following last year’s drop in Chinese stocks and potential government buying as factors that could be propping up China ETFs in 2019.

Russia Becoming More Investor Friendly?

The only three non-China ETFs to land in the top EM ETF list are the Franklin FTSE Russia ETF (FLRU) and the iShares MSCI Russia ETF (ERUS), each up more than 19%.

Russian ETFs have been doing well this year after several high-profile companies significantly hiked their dividends this year, bowing to pressure from Russia’s Finance Ministry to give more money back to shareholders.

Energy giant Gazprom more than doubled its dividend unexpectedly in May, fueling a more than 40% increase in its share price. Gazprom is the largest holding for most Russia ETFs, and its recent investor-friendly move has no doubt buoyed sentiment in the broader Russian stock market.

India’s Divergence

While China dominates the best-performing EM ETF list, the other side of the ledger features a more eclectic group of funds.

At the top of this list is the Columbia India Small Cap ETF (SCIN), down 7.4% year to date. SCIN is one of several India-related ETFs that have fared poorly this year despite the recent reelection of business-friendly Prime Minister Narendra Modi.

Worst Performing EM ETFs Of 2019 (ex. leveraged/inverse)

Ticker	Fund	YTD Return (%)
SCIN	Columbia India Small Cap ETF	-7.37
INCO	Columbia India Consumer ETF	-6.34
SCIF	VanEck Vecors India Small-Cap Index ETF	-4.48
INXX	Columbia India Infrastructure ETF	-4.44
TUR	iShares MSCI Turkey ETF	-4.31
ECH	iShares MSCI Chile ETF	-3.96
INR	Market Vectors-Indian Rupee/USD ETN	-2.13
QAT	iShares MSCI Qater ETF	-1.33
FXCH	Invesco CurrencyShares Chinese Renminbi Trust	-0.86
CHIC	Global X MSCI China Communication Services ETF	-0.74

Note: Data measures total returns for the year-to-date period through June 5

Counterintuitively, SCIN and the others on the list, including the Columbia India Consumer ETF (INCO) and the Columbia India Infrastructure ETF (INXX), have done badly, even as the largest ETF in the space, the iShares MSCI India ETF (INDA), has rallied nearly 8% this year.

The difference comes down to exposure. INDA is weighted heavily toward large cap Indian stocks, and financial, technology and energy stocks in particular.

The India ETFs that have lagged this year focus on small caps, industrials and consumer stocks—areas that have underperformed.

Other Underperformers

Outside of India ETFs, other poor-performing EM ETFs include the iShares MSCI Turkey ETF (TUR), the iShares MSCI Chile ETF (ECH), the iShares MSCI Chile ETF (ECH) and the iShares MSCI Qatar ETF (QAT), with losses of 1% to 6.5%.

Ironically, a China equity ETF is also struggling this year, the Global X MSCI China Communication Services ETF (CHIC), down 0.7% even as other China funds surge.

CHII’s performance goes to show that EM ETFs aren’t all built the same. Just as with U.S. funds, exposure can vary widely, so it’s always important to check under the hood.

​Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2