Top Global Returns Sideline ETF Investors

Seeking Alpha founder David Jackson writes: If you haven't already seen it, take a look at this terrific visualization of where the top returns were in 2005. You'll notice that the top performing stock markets in local currency terms, in order, were:

1. Zimbabwe
2. Palestine
3. Kazakstan
4. Egypt
5. Colombia
6. UAE
7. Lebanon
8. Saudi Arabia
9. Jordan
10. Kuwait
11. Qatar
12. Macedonia
13. Zambia
14. Latvia

What do these markets have in common? Not a single one of them can be captured by an index ETF or single-country closed-end fund. All these markets are barely represented in the broad emerging market indexes, tracked by ETFs EEM and VWO. And there are almost no stocks from those markets that trade in the US as depository receipts. True, most of these markets are small and relatively illiquid, but that's beside the point. US investors sat on the sidelines and watched as those markets rocketed in 2005.

ETF providers need to give investors access to asset classes that aren't currently accessible to US investors. They should start with the most liquid emerging markets that are currently under-represented. Take Israel, for example. The Tel Aviv Stock Exchange is home to World-class companies, and is liquid and properly regulated. But ETF and CEF (closed-end fund) investors have only one fund to choose from: the First Israel Fund (ISL), which trades at a discount to net asset value probably due to its high expense ratio (over 2%), narrow coverage and unimpressive performance. Here's a 2-year chart of ISL:

My goal with ETF Investor is to help investors find and research the right ETFs and CEFs to build diversified portfolios. Check out the blue "accordian" on the right, which is built to make it easy for you to find ETFs and CEFs by asset class. Now we're just waiting for the ETF providers themselves to do a better job of covering the markets...

Comments

[Roger Nusbaum]

A lot of countries have ETFs locally ( I don't know specifically about Egypt or Qatar). I think a more visible path to accessing these markets would be for companies like Schwab to to lobby for change in regualtion and rules so that they could offer access to these local ETFs. I think this could be an easier path than hoping some provider will make the capital investment needed to list a Kuwaiti ETF inthe US.