Emerging markets have recently regained their lost ground and once again started hitting multi-year highs. After a drastic sell-off in 2013, thanks to the fear of decline in hot money inflows from the U.S., a tumbling currencies, current account deficits and slowing internal growth, emerging market stocks bounced back strongly this year on compelling valuations and political reforms in some key nations.

If these were not enough, the recent round of speculations of start of QE in the Euro zone took emerging market equities to the three-year high. In fact, stimulus hopes in the Euro zone spread cheers among investors compelling geopolitical muscle-flexing to take a back seat. Amid such a situation, how can emerging market stocks sit idle?

Country-Wise Perspective

From a market specific point of view, Brazil, Turkey and India have been delivering stellar returns lately. Signals of a change in government in October’s presidential election have led investors to wager on Brazil.

The country has been in question for quite some time now for its slowing growth, spike in inflation, high levels of unemployment and excessive red tape in the private sector. Now, the possibility of an end of the regime under which Brazil’s growth faltered cheered investors. Most of the Brazil ETFs were up on August 26. Another Latin American EM nation – Mexico – logged a better-than-expected GDP growth in Q2.

Moreover, Turkey’s bench mark index climbed its maximum level (on August 22) in three weeks on an expectation of political consistency. iShares MSCI Turkey ETF (TUR) advanced 2% on August 26, following the indication.

India has also been delivering some upbeat economic data. A five-month low inflation figure in July, relatively stable currency, rising auto sales, recovery in infrastructure as well as investment-related sectors have made the nation a meaningful investment proposition at the current level.

The South Korean government too is making some serious efforts to boost domestic demand and Philippines’ Q2 GDP grew at the fastest clip in five quarters. In short, a tendency of revival has been prevalent in EM nations (read: Korea ETFs in Focus on Stimulus Plan, Interest Rate Speculation (revised)).

Why Emerging Markets Are Worth a Look?

Many developed nations are languishing. Japan’s economy has shrunk in Q2 and the Euro zone has been facing slowing inflation which might lead the region to launch a big stimulus measure soon. If this happens, emerging markets will have another source of cheap money inflows (read: Euro Zone Gets QE Hints, 3 ETFs to Buy on Stimulus Hopes).

Given the new-found optimism and promising growth outlook in some nations, investors might seek to ride out this surge in the ETF form over the upcoming days. For those investors, we have highlighted three emerging market ETFs with favorable Zacks Ranks (read: QEM: A Higher Quality Emerging Market ETF?).


Asia Pacific Ex-Japan AlphaDEX Fund (FPA)

This fund provides exposure to the emerging equity market by tracking the Defined Asia Pacific Ex-Japan Index which is a modified equal-dollar weighted index and selects stocks which may generate positive alpha relative to traditional passive-style indices.

The holding pattern reflects the fund’s focus on countries like South Korea and Hong Kong. Together, the nations account for more than 70% of the portfolio. The fund invests about $129.8 million in assets in 99 stocks. It charges 80 bps in fees.

The product is well spread out across each component as none of these accounts for more than a 3.20% share. From a sector look, Financials, Consumer Discretionary and Industrials take the top three spots. The fund has gained more than 16% in the year-to-date frame. This was in comparison to 12% return offered by the biggest EM ETF VWO. FPA currently has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

PowerShares DWA Emerging Market Momentum Portfolio (PIE)

This fund looks to track the Dorsey Wright Emerging Markets Technical Leaders Index. The Index includes more than 100 companies that hail from emerging markets and hold great relative strength characteristics.

This ETF also has a tilt toward South Korea (about 25%) followed by Taiwan (15.7%) and South Africa (13.4%). Other better performing (currently) emerging nations including Brazil, Thailand, Philippines and Mexico also have shares in the fund.

The fund invests about $360 million in assets in 104 stocks. It charges 90 bps in fees. The product is well spread out across each component as none of these accounts for more than 2.80% share. From a sector look, Consumer Discretionary, IT and Industrials take the top three spots with more than 50% of exposure. The fund has gained more than 10% in the year-to-date frame. FPA currently has a Zacks ETF Rank #3 with a Medium risk outlook.

MSCI Emerging Markets Value Index Fund (EVAL)

This fund looks to track the MSCI Emerging Markets Value Index. Given the ongoing turbulence in the market, certain value focus is warranted. Though presently waning, China is the top priority of the ETF with about 19% exposure. South Korea (14.86%), Taiwan (12.1%) and Brazil (11.2%) round out the next three positions.

The fund invests about $25 million in assets in 462 stocks. It charges 49 bps in fees. The product is well spread out across each component as none of these accounts for more than a 3.30% share. From a sector look, Financials, Energy and Materials take the top three spots with more than 60% of exposure (read: 3 Top Performing Emerging Market ETFs).

The fund has gained more than 16% in the year-to-date frame. EVAL currently has a Zacks ETF Rank #3 with a Medium risk outlook.

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Read the analyst report on FPA

Read the analyst report on PIE

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Read the analyst report on TUR


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