Emerging Markets And The Case Of The Disappearing Dividends [View article]
Sure Diego. I was not referring to government strategic shareholdings. That’s another aspect of risk for minorities since many government controlling shareholders are often more interested in managing companies for social purposes rather than maximizing shareholder value. In terms of the strategic interests it is important to understand many EM companies are owned and run by wealthy individuals or groups. This can be positive and also negative since these entities can have other interests in the local economy which could result in questionable m&a through related party transactions, selective buybacks, unattractive minority buyouts or squeeze-outs, and buybacks inspired by efforts to gain management control. There is also the issue of flimsy minority shareholder protection in many countries. Some examples are ENRC, Norilsk Nickel and TNK-BP/Rosneft. The methods used are usually subtle, since strategic shareholders still try to navigate around local laws, but can be value destructive. That’s not to say things like this don’t happen in developed markets but I would highlight shareholder structure, and motivation, as a crucial consideration when evaluating an EM equity.
Emerging Markets And The Case Of The Disappearing Dividends [View article]
Thanks for the feedback.I think its important to not view the asset class as a monolithic entity. The markets all have different drivers and structures. Why are you investing in EM? I look for things like young demographics and potential for middle-class expansion. Openness to foreign investment, labor force competitiveness, business friendly government policies and a decent level of corporate governance. Comfort with the macro-economy. Nowhere is perfect but you can narrow your universe down quickly. Countries that I have written about that tick those boxes are Mexico, Turkey, many SE asian markets including Singapore and HK. If we started to see more positive commodity price trends, Latam markets like Colombia and Peru could perform well. I also like smaller caps in EM since these tend to have more domestic economy exposure, less state involvement and can be well managed.I disagree with RM13 about punishing foreign investors - Indonesia and Turkey need capital and this should support more business friendly policies. The point I wanted to make with the article is that the broad asset class (as it is structured) is not good at delivering shareholder returns and basically there is no good time to buy a cap-weighted GEM fund. Understand why you are investing, differentiate and you can find opportunities in EM.
The numbers are good and cross-checked on E-trade. Look at 4/17/12 closing pxs vs 4/17/13 closing pxs and add the distributions. Yes EPHE has been a good performer too as the chart indicates.
Don't Forget About Emerging Market Equities [View article]
Thank you for sharing your thoughts Russ. In terms of understanding the emerging market ‘value’ proposition, should we consider dividends the ETP’s pay shareholders? Looking at some of the larger country funds recently, the trailing dividend yields on iShares products are higher in places like Brazil (2.8%), Russia (2.3%) and China (2.5%) than what I can buy for a US index like SPY (2%). But after considering higher access costs of the EM funds this spread is largely wiped out. Further, when we consider the equity market structure of places like Brazil, China and Russia, there is a high concentration of companies that are state-controlled and shareholder returns depend on government directives. That’s not the most comfortable situation to be in. What kind of yields should investors seek from these markets given these risks and the maturation of some of the large industries represented in the markets’ invest-able universe? Thanks
Credicorp is 24% of Peru (EPU), TSM is 20% of Taiwan, Gazprom is 18% of Russia (ERUS) and America Movil is 17% of Mexico (EWW). So Samsung is uniquely large. On the currency risk, yes if you are a USD based investor and the USD strengthens vs Won then that's negative for Won denominated securities. The problem for Korea specifically is the weaker Yen since their companies compete head on with many Japanese and competitiveness will erode.
GEM USD Debt ETFs: The Run Looks Done [View article]
On EMCB vs LQD - that's my point, its performed well and now it doesn't look compelling. You are right there are some smaller funds in this segment. I outlined on the four largest ones.
GEM USD Debt ETFs: The Run Looks Done [View article]
Thanks for your question Eli. Its not an easy case to make. What I thought was important to illustrate was that yield spreads relative to US debt are now low, and if you factor in higher access costs on the ETF products spreads are even lower. Maybe spreads can tighten more given good fundamentals in EM, but a risk premium is still warranted. Also - and this is a topic for another day - EM central banks don;t have the option to QE like developed markets do without stoking inflation which of course their governments don't want.
There is no doubt lower fees provide a tailwind for performance. Did they actually have to do a study to figure that out? However, portfolio composition is more important than fees and you will see the most differentiation on that basis. The fact is, executing in emerging market securities is more expensive and complex. You can do it, but ETFs give you another option.
Hi David These funds have slightly higher management fees than other emerging market ETFs but not much. I wouldn't let that influence a decision on the fund. Yes I believe that by utilizing differentiated index strategies investors can improve their returns. Exposure to emerging market consumer and transport sector stocks are good strategies to capitalize on growing middle classes in EM. My only concern with EMIF is its utility sector exposure which often faces regulatory/policy risk in EM countries, but I like its unique transport sector exposure.
GEM Dividend ETFs: A Hard Case To Make [View article]
You will see my thoughts on DGS very soon. As for EEMV, I wouldn't consider this a large cap play, especially in comparison to the GEM benchmark funds which are cap weighted. In any case stay tuned, I will cover EEMV this week.
GEM ETFs: A Simple Selection Process [View article]
Thanks. I covered DEM in a following article which starts to break the GEM universe down into the various index strategy sub-sets. Its a large asset class so I thought it made sense to categorize the funds and understand each index strategy first, and then compare them. I will cover EEMV in an article very shortly.
Emerging Markets And The Case Of The Disappearing Dividends [View article]
In terms of the strategic interests it is important to understand many EM companies are owned and run by wealthy individuals or groups. This can be positive and also negative since these entities can have other interests in the local economy which could result in questionable m&a through related party transactions, selective buybacks, unattractive minority buyouts or squeeze-outs, and buybacks inspired by efforts to gain management control. There is also the issue of flimsy minority shareholder protection in many countries. Some examples are ENRC, Norilsk Nickel and TNK-BP/Rosneft. The methods used are usually subtle, since strategic shareholders still try to navigate around local laws, but can be value destructive. That’s not to say things like this don’t happen in developed markets but I would highlight shareholder structure, and motivation, as a crucial consideration when evaluating an EM equity.
Emerging Markets And The Case Of The Disappearing Dividends [View article]
The point I wanted to make with the article is that the broad asset class (as it is structured) is not good at delivering shareholder returns and basically there is no good time to buy a cap-weighted GEM fund. Understand why you are investing, differentiate and you can find opportunities in EM.
IEMG Versus EEM: Beating Big Brother [View article]
Turkey ETF: In The Sweet Spot [View article]
Chile, Peru And Colombia ETFs: Goldilocks In The Andes [View article]
Mexico ETF: Attractive In Many Ways [View article]
Don't Forget About Emerging Market Equities [View article]
Asia ETFs: Mature Can Be Good [View article]
GEM USD Debt ETFs: The Run Looks Done [View article]
GEM USD Debt ETFs: The Run Looks Done [View article]
GEM Sector ETFs: Unique Options [View article]
GEM Sector ETFs: Unique Options [View article]
GEM Sector ETFs: Unique Options [View article]
These funds have slightly higher management fees than other emerging market ETFs but not much. I wouldn't let that influence a decision on the fund. Yes I believe that by utilizing differentiated index strategies investors can improve their returns. Exposure to emerging market consumer and transport sector stocks are good strategies to capitalize on growing middle classes in EM. My only concern with EMIF is its utility sector exposure which often faces regulatory/policy risk in EM countries, but I like its unique transport sector exposure.
GEM Dividend ETFs: A Hard Case To Make [View article]
GEM ETFs: A Simple Selection Process [View article]