5 Emerging Markets ETFs ex-Taiwan & South Korea

by on October 9, 2012 | ETFs Mentioned:

Emerging market ETFs have seen a surge in interest in recent years, as U.S.-based investors have embraced this asset class as a core components of any long-term, growth-focused strategy. With most developed markets still trying to recover from the financial crisis, the growth potential of emerging markets has been even more appealing. Vanguard recently shook up the discussion around emerging markets ETFs when it announced it will transition its popular VWO from an MSCI index to a FTSE benchmark. While there are some similarities between the indexes, there are some big differences as well. For example, FTSE considers South Korea to be a developed market, while MSCI counts it as emerging (and therefore one of the largest allocations in products such as EEM). 

Many investors would likely be surprised to learn that significant portions of their “emerging markets” ETFs have exposure to economies that most have considered “developed” by many organizations for decades. Specifically, South Korea and Taiwan meet the developed market standard of many index providers and organizations such as the IMF, and exhibit per capita GDPs, literacy rates, and life expectancy rates that make them more similar to the U.S. and Canada than Brazil and China. In many of those categories, South Korea and Taiwan score higher than markets such as Italy.

Below, we profile several ETFs that offer “pure play” exposure to emerging markets by excluding the quasi-developed South Korea and Taiwan altogether [see a list of all emerging ETFs]:

1. Dow Jones Emerging Markets Consumer Titans Index Fund (ECON)

This ETF is linked to a free floating market cap weighted index which follows 30 leading emerging market companies focused on consumer goods and consumer services. With a strong focus on both large and giant stocks, this ETF has the stability of the consumer sector and size, but with the growth potential of a growing middle class, and the potential for great consumer returns. There is also some exposure to technology and industrials for more added growth opportunities.

ECON focuses about half of its funds on Latin American markets such as Mexico, Brazil, and Chile. There are also majority holdings in South Africa and India, giving this ETF great global diversification within the emerging markets.

2. Low Volatility Emerging Markets Dividend ETF (HILO)

This ETF is constructed to deliver higher yields and lower volatility than average market cap weighted emerging market indexes, and is linked to a dividend yield weighted index. Most of the companies included are focused on communications, utilities, and sectors known for high and consistent dividends. These companies are spread between giant, large, and medium size firms, but there is some exposure to small firms as well.

HILO’s top country holdings include Brazil, South Africa, Malaysia, and China, with smaller holdings in European countries such as Hungary, Poland, and the Czech Republic.

3. Emerging Markets High Yield Bond Fund (EMHY)

This emerging markets bond fund tracks the performance of below investment grade emerging market sovereign and corporate bonds, denominated in US dollars. About two thirds of the fund is made up of government bonds, the average weighted maturity is about 9 years and the average weighted coupon about 7.5 years.

This ETF maintains a portfolio that generally steers clear of South Korea and Taiwan, as well as the BRICs; component countries include  Turkey, Venezuela, and the Philippines. 

4. GEMS Composite ETF (AGEM)

This ETF follows the Dow Jones Emerging Markets Titans Composite Index, which is made up of 10o companies deemed to be leading in each of the 10 industrial sectors. There is a bit of tilt to energy and financial companies in the ETF, with very little exposure to healthcare and no exposure to real estate. About two thirds of the companies are giant caps, with the remaining third almost entirely made up of large caps.

About a quarter of the companies in AGEM hail from emerging China, with other majority holdings in Brazil, Russia, South Africa, and India. The minority holdings are mostly other emerging Asian markets, in this case Indonesia, Malaysia, and Thailand.

5. Beyond BRICs ETF (BBRC)

BBRC invests in 50 global stocks from emerging markets, excluding over invested markets and instead focusing on under-saturated markets where growth has yet to really draw attention to them. This ETF is entirely made up of giant and large stocks, with a focus on financial services, communication, energy, and basic materials.

This ETF has about three quarters of its funds split evenly between South Africa, Mexico, Malaysia, Thailand, and Indonesia. The remain quarter is made up of numerous small holdings in Europe and Latin America [see also Alternatives To The 20 Most Popular ETFs].

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Disclosure: No positions at time of writing.