After a surge from mid-February to late-April, domestic equity markets fell sharply to close out the first half of the year, limping across the finish line on continued fears over the euro zone and weak job growth. This drop has put many U.S. benchmarks at their lowest level since early October of 2009, and has left many investors wondering if the U.S. economy is headed for a double dip recession. Events have seemingly taken a turn for the worse in many other developed and emerging markets around the world as well, with many European benchmarks posting losses of more than 20% on the year. Chinese and Japanese markets have posted double digit losses [see the Top Six Stories From The First Six Months Of 2010].
There were, however, some bright spots in the first half of 2010. Investors have frequently lamented that correlations between international markets are now stronger than ever, meaning that international diversification lets them down just when they need it the most. But there is some anecdotal evidence to the contrary; three emerging markets managed to post solid gains in the first half, distancing themselves from losses experienced everywhere else.
The best performers in the first half aren’t among the usual suspects; China, India, and Brazil are nowhere to be found on this list. In addition to vastly outperforming other country specific ETFs, these funds are among the best performing equity ETFs available to investors. According to the ETF Screener, the top-performing country ETFs have beaten every equity ETF over the past six months except for the B2B HOLDR (BHH), which only has two companies in its index, and the Internet Infrastructure HOLDR (IIH).
Below we profile the three emerging market ETFs which have managed to surge ahead despite overall weakness in the global economy and look to continue their outpeformance in the rest of 2010 [also see Three ETF Ideas For The Third Quarter].
3. iShares MSCI Thailand Index Fund (THD)
The third best country-specific ETF tracks the Thai equity market by following the MSCI Thailand Investable Market Index. THD was up 8.4% thus far in 2010 and more than 40% over the past 52 weeks, despite violent protests and riots in Bangkok earlier this year that disrupted market activity there. This fund has a heavy concentration in energy and financials, which combine to make up roughly two-thirds of the total assets of the fund [see more on THD's sector breakdown here]. In terms of market capitalization, the fund has a decent sized weighting in giant (22.1%) and medium caps (14.3%), but the vast majority of its holdings go towards large cap firms. which make up 42% of total assets. Some of its top holdings include PPT Public (12.2%), PTT Exploration and Production (9.9%), and Bangkok Bank (8.9%) [also read Looking For Green Shoots? Try Southeast Asia ETFs].
2. Market Vectors Indonesia Index ETF (IDX)
Coming in second thus far in 2010 for country specific ETFs is IDX, which has surged 15.4% this year and more than 60% over the past 52 weeks. IDX offers exposure to companies that derive at least 50% of their revenues from Indonesia by tracking the Market Vectors Indonesia Index. The fund is reasonably well spread out among sectors with 25% going towards financials, 20% to industrial materials, 15%% to consumer goods, and 14% to energy firms. Its top holdings include PT Astra International TBK (8.80%), PT Bank Central Asia TBK (6.80%), and P.T. Telekomunikasi Indonesia Tbk. (6.75%). The fund holds 29 securities in total and charges an expense ratio of 0.68% [also read Beyond The BRIC: Ten Country-Specific Emerging Market ETFs].
1. Global X/InterBolsa FTSE Colombia 20 ETF (GXG)
The best performer for country specific ETFs thus far in 2010 is GXG. a fund that tracks the FTSE Colombia 20 Index. This benchmark is a market capitalization-weighted index that includes the 20 most liquid stocks in the Colombian market. Despite a poor reputation stemming from drug violence and kidnappings, Colombia has managed to turn things around in the past few years and make itself a major destination of investment in Latin America. The fund is up more than 40% over the past 52 weeks and a whopping 18% in the first half of 2010 [see more fundamentals of GXG here]. This is even more impressive considering that the ETF tracking Chile (ECH) was the only other fund to post a gain in the first six months in the Latin America Equities Category. The fund is heavily weighted towards financials (34%) and energy firms (29.4%). For individual holdings the fund has close to 40% of its assets in two firms; Ecopetrol S.A and BanColombia SA [also see Beyond EWZ: Five Other Latin America ETF Options].