Emerging market ETFs continued to offer strong returns in recent times on the back of solid inflows into emerging markets over the past few months. Out of these, emerging Asia markets accounted for the major portion of the inflows. This is an ideal time to take a look at emerging Asia market ETFs that are gaining from this encouraging backdrop.
Lump Sum Inflows into Emerging Markets
According to Institute of International Finance (IFF), emerging market securities took in huge inflows of around $25 billion last month, significantly higher than $13.3 billion of inflows registered in June. This was only the second month in which emerging market securities registered inflows of more than long-term average of $22 billion over the past one-year period. While equity securities posted mammoth inflows of $14.6 billion in July, debt securities attracted nearly $10.2 billion.
Also, the top three emerging market ETFs - the iShares MSCI Emerging Markets (NYSEARCA:EEM), the iShares JPMorgan USD Emerging Markets Bond (NYSEARCA:EMB) and the iShares Core MSCI Emerging Markets (NYSEARCA:IEMG)- posted total net inflows of $6.2 billion in July. The funds EEM, EMB and IEMG saw $3.7 billion, $1.5 billion and $1.0 billion of inflows during the month, respectively. Also, emerging markets are outperforming major developed markets since start of this year. EEM, which tracks the performance of broader emerging markets, gained 11.5% in the year-to-date frame, while the S&P 500 rose 5.5% during the same time period.
Among the major emerging market regions, securities from Asia clearly saw the best inflows of $19.1 billion. Emerging markets in Latin America also registered healthy inflows of $8.7 billion last month. However, growing demand for emerging market securities failed to boost the emerging Europe and Africa/Middle East markets, which witnessed outflows in July.
Major Reasons for the EM Surge
In its report, IFF mentioned: "There was a vigorous rebound in risk appetite in the weeks following the Brexit vote, reflected in a sharp pick-up in investor interest in emerging market and other risk assets, as investors digest near-record-low global yields." Relatively higher commodity prices (most EM economies are commodity-rich), a subdued greenback on a dovish Fed and the hunt for yield had a positive impact on emerging markets in recent times.
While record low level of yields on developed market government bonds following Brexit boosted demand for emerging market debt securities, the possibility of getting less affected by Brexit had a positive impact on emerging market equity securities. Also, a large exposure to commodities also helped emerging markets to surge recently on the back of rising commodity prices. Moreover, a favorable growth outlook in these economies is also likely to boost demand for securities from these markets.
3 Surging Asia Emerging Market ETFs
As we have already mentioned, emerging markets in Asia are the ones that are attracting the major portion of the emerging market inflows. Moreover, we have also seen that equities represent the lion's share of these inflows. Keeping these facts in mind, we have highlighted three equity focused ETFs from this space that have gained significantly from this encouraging scenario.
iShares MSCI Indonesia ETF (NYSEARCA:EIDO)
This ETF has AUM of $713.9 million and solid average daily volume of more than 870,000 shares. The fund tracks the MSCI Indonesia Investable Market Index, holding 82 securities in its basket while charging 62 bps in annual fees from investors. The product is somewhat concentrated on both sectors and securities. The top five firms account for nearly 48% of total assets, while, from a sector point of view, financials dominates the fund's assets with 35.7% share.
EIDO has a Zacks ETF Rank #3 (Hold) with a High risk outlook and registered an inflow of $113.49 million in July. The ETF also gained 17.5% and 8.2% over the past three-month and one-month periods, respectively.
iShares MSCI Thailand Capped ETF (NYSEARCA:THD)
This ETF follows the MSCI Thailand IMI 25/50, holding a basket of about 125 companies. The product puts about 47.8% of total assets in the top 10 holdings, suggesting moderate concentration. With respect to sector holdings, financials again takes the largest share at 27.1%, followed by energy (15.5%) and consumer staples (10.5%). The product has amassed $424.3 million in its asset base while it trades in moderate volumes of around 222,000 shares.
It charges 62 bps in fees per year. THD has a Zacks ETF Rank #3 with a Medium risk outlook and saw inflows of $56.72 million in July. The ETF also gained 10.1% and 5.7% over the past three-month and one-month periods, respectively.
iShares MSCI Philippines ETF (NYSEARCA:EPHE)
The fund has AUM of $374.2 million and average daily volume of about 355,000 shares. The fund tracks the MSCI Philippines Investable Market Index while it charges 62 bps in annual fees. Holding 45 stocks, the product is slightly skewed toward the top 10 firms at nearly 62%. It is also a bit concentrated from a sector look, as financials takes the top spot at 46.4% while industrials and telecom round off the next two positions at 21.6% and 8.3%, respectively.
EPHE has a Zacks ETF Rank #3 with a Medium risk outlook and registered inflows of $17.5 million in July. The ETF also gained 14.6% and 0.8% over the past three-month and one-month periods, respectively.