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Matthew Sauer, Esq.
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Matthew Sauer, Esq. is the President and Chief Investment Officer of the Mutual Fund Investor Guide. Each month he publishes the Investor Guide to Fidelity Funds, Investor Guide to Vanguard Funds and ETF Investor Guide. On a weekly basis he publishes the Global Momentum Guide, focusing on sector... More
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Mutual Fund Investor Guide
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Mutual Fund Investor Guide
  • ETFs In Focus: Emerging Market Funds & The SE Asia Bear Market 0 comments
    Aug 27, 2013 2:27 PM | about stocks: IDX, EPI, EUM, VWO, EEM, DEM, EEMV, DGS

    With Indonesia and India weakening again this week, it is time to consider which ETFs stand to benefit from a further collapse and or a rebound in these markets. Simply put, these markets are extremely oversold and in such oversold conditions, one either sees a further collapse or a very sharp rebound.

    For investors wanting to play a bounce, the obvious move is to buy Market Vectors Indonesia (NYSEARCA:IDX) or an India ETF such as WisdomTree India Earnings (NYSEARCA:EPI). For investors looking to go short, an inverse ETF such as ProShares Short Emerging Markets (NYSEARCA:EUM) is one of the few options available.

    For other investors, risk can be increased or reduced by adjusting which emerging market ETF they hold. The five largest emerging market ETFs by assets are Vanguard FTSE Emerging Markets (NYSEARCA:VWO); iShares MSCI Emerging Markets (NYSEARCA:EEM), WisdomTree Emerging Markets High Yielding Equity (NYSEARCA:DEM), iShares MSCI Emerging Markets Minimum Volatility (NYSEARCA:EEMV), iShares Core MSCI Emerging Markets (NYSEARCA:IEMG) and WisdomTree Emerging Markets SmallCap Dividend (NYSEARCA:DGS).

    IEMG has heavy exposure to China and the greater Chinese economy, with large holdings in Taiwan. EEM is very similar, with slightly more exposure to the largest countries.

    EEMV also has large China exposure, but Taiwan is the top country holding. EEMV also has more exposure to Malaysia and Indonesia.

    DEM has a lot of exposure to China, Russia and Brazil, but very little in India or Indonesia.

    DGS has large exposure to Southeast Asia via Malaysia and Thailand.

    VWO has some of the largest exposure to India and also significant exposure to China. Taiwan, Brazil and South Africa are also weighted heavily.

    Even though you'd expect the low volatility ETF (EEMV) to hold up well, it has been one of the worst performing of these ETFs in the past month. Only the small cap DGS, which is both small cap and has heavy exposure (relatively speaking) to the SE Asian markets, performed worse. Year to date, EEMV and DGS have held up better and led this pack of emerging market ETFs. Moving forward then, these two funds are likely to either see the biggest rebounds or continue suffering the largest losses, assuming a crisis spreads far enough to hit Malaysia.

    Over the past month, the best performing emerging market ETF of this bunch has been DEM, down a little over 3 percent. It will continue to lead as long as SE Asia and India remain in tumult.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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