INDA, Emerging Markets ETFs Outperforming SPY
Have you looked at emerging markets exchange-traded funds lately?
While investors have been captivated by the continued dominance of the mega-cap growth driven U.S. stock market, five emerging markets countries have outperformed the S&P 500 index in the past month.
The top-performing country ETF, the iShares MSCI South Africa ETF (EZA) is up more than 10% while the largest country ETF, the iShares MSCI India ETF (INDA), has risen 5%, edging out the 4.6% gain for the SPDR S&P 500 ETF Trust (SPY).
Other countries outperforming U.S. stocks in the past month include Taiwan, South Korea and Indonesia.
Emerging markets ETFs, in aggregate, have nearly matched the one-month S&P 500 performance with a gain of 4.4%, as measured by the iShares MSCI Emerging Markets ETF (EEM).
The recent momentum for emerging markets comes at an interesting time for investors and advisors, as the S&P 500 is arguably overpriced at a price-earnings ratio of 29 (the historic median is about 17) while the PE on the MSCI Emerging Markets Index is 13.
With the prospects of a slowing U.S. economy and a weakening U.S. dollar in the second half of 2024, emerging markets are looking more attractive as a diversification tool.
Top Performing Emerging Markets Countries 2024
Ticker | Fund | Expense Ratio | AUM | YTD Return |
0.59% | $244.7M | 33.51% | ||
0.49% | $123.2M | 24.93% | ||
0.59% | $5.5B | 21.86% | ||
0.79% | $981.8M | 19.64% | ||
0.59% | $301.0M | 12.57% |
Data as of July 9, 2024. Past performance is no guarantee of future results.
iShares MSCI Turkey ETF
The iShares MSCI Turkey ETF (TUR) tracks the MSCI Turkey IMI 25/50 Index, which includes both large and mid-sized companies across various sectors of the Turkish economy. Turkey's tech sector has been a standout performer this year, with strong growth from companies like the clothing retailer FLO and Pegasus Airlines.
YTD return: 33.51%
Assets under management: $244.7 million
Expense ratio: 0.59%
iShares MSCI Peru ETF
The iShares MSCI Peru ETF (EPU) seeks to track the investment results of an index that provides exposure to Peruvian stocks, including companies with strong economic ties to Peru that are not listed on the Peruvian exchange. The EPU ETF is performing well in 2024 likely due to a surge in copper prices, a key Peruvian export that benefits many companies in the fund.
YTD return: 24.93%
Assets under management: $123.2 million
Expense ratio: 0.59%
iShares MSCI Taiwan ETF
The iShares MSCI Taiwan ETF (EWT) seeks to track the MSCI Taiwan 25/50 Index, including large and mid-sized companies across various sectors of the Taiwanese economy. EWT’s outperformance in 2024 has been primarily driven by a rise in demand for semiconductors, a key industry within the Taiwanese economy.
YTD return: 21.86%
Assets under management: $5.5 billion
Expense ratio: 0.59%
iShares MSCI India Small-Cap ETF
The iShares MSCI India Small-Cap ETF (SMIN) tracks the performance of the MSCI India Small Cap Index. The SMIN ETF's strong performance in 2024 is due to a surge in demand for Indian small-cap stocks, fueled by optimism about domestic economic growth, which typically benefits smaller companies more than larger ones.
YTD return: 19.64%
Assets under management: $981.8 million
Expense ratio: 0.79%
Global X MSCI Argentina ETF
The Global X MSCI Argentina ETF (ARGT) tracks the MSCI All Argentina 25/50 Index investing in the largest and most liquid securities with exposure to Argentina. According to Global X, President Javier Milei and his economic policy guidance is expected to drive foreign investment into Argentina and unlock greater economic potential.
YTD return: 12.57%
Assets under management: $301.0 million
Expense ratio: 0.59%
Outlook for Emerging Markets ETFs in 2024
The outlook for emerging markets in 2024 is mixed with both positive and negative factors at play. Here's a summary:
Positive Factors
Potential for growth: Emerging economies are projected to have higher growth rates than developed economies, potentially leading to stronger corporate earnings and stock market appreciation.
Valuation: Emerging markets might be seen as undervalued compared to developed markets, making them attractive to investors seeking higher potential returns.
Weakening U.S. dollar: A weaker U.S. dollar can make emerging market stocks more attractive to foreign investors, boosting their prices when purchased with stronger currencies.
Improved investor sentiment: Policy changes in some countries and renewed interest in emerging markets after a potential downturn in 2023 could lead to more investment inflows.
Negative Factors
Slowing global growth: A potential slowdown in global economic growth, particularly for major economies like the U.S. or China, could dampen demand for emerging market exports and hinder their growth prospects.
Geopolitical risks: Political instability or conflicts in some emerging markets can create uncertainty and deter investments.
High inflation: Certain emerging markets like Argentina and Turkey struggle with high inflation which can erode corporate profits and consumer purchasing power.
Currency fluctuations: While a weaker U.S. dollar can be positive, sharp currency fluctuations in emerging markets can create risks for investors.
The outlook for emerging markets in 2024 is cautiously optimistic. While growth potential exists, careful selection and an understanding of the risks involved are crucial for investors.