Top 10 Emerging Markets ETFs

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 |  Includes: AAXJ, AFK, BKF, EEM, EEMV, IEMG, ILF, MES, SCHE, VWO
by: David Fry

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The Emerging Market sector is one of the most dynamic and compelling areas of investment for investors in international markets. At the same time it can be the most confusing and even misleading.

Many indexes created over the past two decades or so include country constituents that most would know intuitively cannot be classified as emerging any longer. For example, South Korea, Brazil, China and India certainly come to mind as no longer emerging. The World Bank is a resource to establish these categories. They may choose per capita income as a standard. Therefore for countries with large populations, and that were emerging, still show per capita income of roughly $2,000-$3000. This is just one way to view the classification. S&P, MSCI and others have their own methodologies.

Separately large index providers and linked ETFs have become established and popular given the existing structure. For example, MSCI's Emerging Market Index includes a large weighting in South Korea, which had grown to 15%. Since the ETF was hugely popular, it was difficult from a business view for the MSCI to change the index by altering constituents to something more logical. It remains popular however and is the index linked to iShares Emerging Markets ETF (NYSEARCA:EEM).

However, early in 2013 Vanguard made a transition from MSCI to FTSE for its popular ETF (NYSEARCA:VWO). One reason was to reduce in an orderly manner the overexposure to South Korea. So now investors have a choice between these two popular sponsor products.

Elsewhere there are regional ETFs based indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. These are featured in Latin America, Asia, Africa and the Middle East.

As of this publication date Emerging Markets are undergoing a correction exceeding more developed markets. Monetary policies within most of these countries are different and less capable of matching the large central banks in developed markets. As such they're incapable of providing their markets with the same liquidity, which has stifled performance in 2013 thus far.

The long-term fundamental view is many of these markets offer the best long-term growth opportunities given a wide variety of positives including: good demographics with younger populations, many possess much needed natural resources and GDP growth rates generally are much higher than developed markets. The downside is greater volatility meaning more risk, political uncertainties and less depth to markets.

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12-month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

Vanguard Emerging Markets ETF (VWO)

VWO follows the FTSE Emerging Transition Index. The index is a market-capitalization weighted index representing performance of large- and mid-cap stocks providing coverage of emerging markets plus South Korea. South Korean equity exposure will be reduced gradually over time. The fund was launched in March 2005. The expense ratio is 0.18%. Assets under Management (AUM) equal $53 billion and average daily trading volume is 16 million shares. As of June 2013 the dividend yield is 2.50% and YTD return is -10.66% and one-year return is 7.65%.

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iShares Emerging Markets ETF (EEM)

EEM follows the MSCI Emerging Markets Index. The fund was launched in April 2003. The expense ratio is 0.67%. Assets under Management (AUM) equal $35 billion and average daily trading volume is 60 million shares. As of June 2013 the dividend yield is 2% and YTD return is -11.30% and one-year return is 7.25%.

ProShares & Direxion Shares have long or short leveraged ETFs corresponding generally to EEM.

iShares MSCI Minimum Volatility Emerging Markets ETF (NYSEARCA:EEMV)

EEMV follows the index, which aims to reflect the performance characteristics of a minimum variance strategy applied to large and mid cap equities across 21 Emerging Markets countries. The index is calculated by optimizing the MSCI Emerging Markets Index, its parent index, for the lowest absolute risk (within a given set of constraints). Historically, the index has shown lower beta and volatility characteristics relative to the MSCI Emerging Markets Index. The fund is new and only recently launched in October 2011. The expense ratio is 0.25%. Assets under Management (AUM) equal $2.2 billion and average daily trading volume is 450 million shares. As of June 2013 the dividend yield is 1.7% and YTD return is -5.10% and one-year return is 12.58%.

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iShares Core MSCI Emerging Markets ETF (NYSEARCA:IEMG)

IEMG follows the MSCI Investable Market Index. The fund was launched in October 2012. It is part of a suite of new so-called core products from iShares. The difference between IEMG and its counterpart EEM seem vague at first glance. The primary difference in the expense ratio at 0.18% is nearly 50% lower. It also tracks a relatively different version (IMI) of the MSCI Emerging Markets Index. This will increase exposure to small cap issues not available with EEM. Assets under Management (AUM) equal $1.4 billion and average daily trading volume is 500K shares. As of June 2013 the dividend yield is projected at 2.98% and YTD return is 9.69% and one-year return is not available.

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Schwab Emerging Markets Equity ETF (NYSEARCA:SCHE)

SCHE follows the FTSE All Emerging Market Index, which includes the top 90% of companies of the eligible universe thus avoiding what it perceives as small cap issues. The fund was launched in January 2010. The expense ratio is 0.15%. Assets under Management (AUM) equal $820 million and average daily trading volume is 320K shares. As of June 2013 the dividend yield is estimated at 2.40% and YTD return is -10.55% and one-year return is 8.80%.

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iShares MSCI BRIC ETF (NYSEARCA:BKF)

The fund follows the MSCI BRIC Index, which is constructed from constituents in Brazil, Russia, India and China. The fund was launched in November 2007. The expense ratio is 0.69%. Assets under Management (AUM) equal $530 million and average daily trading volume is 200K shares. As of June 2013 the dividend yield is 2.21% and YTD return is -12.30% and one-year return is 5.57%.

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iShares Latin America ETF (NYSEARCA:ILF)

ILF follows the S&P Latin America 40 Index, which consists of companies from Mexico, Brazil, Argentina and Chile. The fund was launched in October 2001. The expense ratio is 0.50%. Assets under Management (AUM) equal $1.1 billion and average daily trading volume is 520K shares. As of June 2013 the dividend yield is 2.50% and YTD return is -10.66% and one-year return is -0.75%.

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iShares Asia ex-Japan ETF (NASDAQ:AAXJ)

AAXJ follows the MSCI All Country Index ex-Japan, which follows the performance of both developed and emerging equity markets. The fund was launched in August 2008. The expense ratio is 0.67%. Assets under Management (AUM) equal $2.5 billion and average daily trading volume is 500K shares. As of June 2013 the dividend yield is estimated at over 3.3% and YTD return is -7.65% and one-year return is 12.84%.

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Market Vectors Africa ETF (NYSEARCA:AFK)

AFK follows the Dow Jones Africa Titans 50 Index. The fund was launched in July 2008. The expense ratio is 0.78%. Assets under Management (AUM) equal $100 million and average daily trading volume is 60K shares. As of June 2013 the dividend yield is 3.60% and YTD return is -7.37% and one-year return is 11.50%.

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Market Vectors Gulf States ETF (NYSEARCA:MES)

MES follows the Dow Jones GCC Titans 40 Index, which provides exposure to publicly traded companies headquartered in countries belonging to the Gulf Cooperation Council (GCC) or that generate the majority of their revenues from these countries. It would be a mistake to think companies within the index are oil companies since most of these activities are owned by the governments or royal families. The fund was launched in July 2008. The expense ratio is 0.98%. Assets under Management (AUM) equal $13 million and average daily trading volume is less around 6K shares. As of June 2013 the dividend yield is 2.40% and YTD return is 24.36% and one-year return is 33.70%.

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SUMMARY

Emerging Markets are a hot topic given poor recent performance. There are differences among the group when regional issues are viewed. The basic and most popular ETFs have similar structures and performance.

Technically with the exception of MES, most of these ETFs are experiencing a significant correction. They're not in bear markets yet but no doubt are making some nervous in that regard. It's only mid-June as 12-month period MAs are breaking down. A rally could easily ensue from more U.S. Fed QE or from oversold conditions before month end.

It's essential to remember it's really a game of battleship for sponsors seeking to be first to a sector space or just being competitive in the space. This is their business interest apart from your investment interest. You should always align your choices with what serves your objectives best.

The ETF Digest has no current position in the featured securities.

(Source for data is from ETF sponsors and various ETF data providers.)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.