ETFs For The World’s Most Valuable Emerging Markets Brands

by on August 27, 2012 | ETFs Mentioned:

Unresolved eurozone debt drama and worries of sluggish growth on the homefront continue to weigh on investors’ confidence; in the equity market, this has prompted many to flee to large-cap corporations primarily based in the United States, as this asset class has long had appeal among those looking to scale back on risk exposure without entirely moving to the sidelines. While this strategy has proven its worth in recent quarters, those looking to stay ahead of the curve will need to adjust their approach if they wish to favorably position themselves as more and more investors take note of the slowly improving global economic outlook [see also 101 ETF Lessons Every Financial Advisor Should Learn].

The appeal behind investing in large, well-known securities is fairly straightforward; during times of economic uncertainty, when it comes to market capitalization, the bigger the better. Simply put, investing in global brands is a surefire way to reap the benefits of a broad-based rally while also enjoying lower levels of volatility when equity markets are plagued with uncertainty. This thinking has, however, drawn many away from emerging markets in recent months; with sluggish growth and debt troubling most of the developed world, many investors have been hesitant to jump ship to emerging markets despite their history of delivering stellar returns in times of recovery [see also Simple Safe Haven ETFdb Portfolio].

One factor that’s keeping investors away from buying Companhia de Bebidas (ABV), a Brazil-based beverage company, over Coca ColaFile:Shoppers on Dundas, near Yonge.jpg (KO) when markets turn sour is brand recognition. When Wall Street gets choppy, investors turn to what they know and see in their everyday lives; what better way to remain invested while scaling back on risk than to buy shares of the biggest, most popular, companies that produce everyday goods we all consume. From a consumer perspective, GfK research group concluded that only about one-third of American were willing to even consider buying an Indian or Chinese car. This begs the question of how many investors are willing to consider staple, large cap, emerging markets stocks as viable “safe havens” in times of equity market turbulence. Despite the numerous advantages that overseas firms boast, it’s still a marketing game at the end of the day; brand recognition plays a vital role not only in our purchasing habits but in our investment strategies as well.

Interbrand, the world’s largest brand consultant, cites only four emerging markets-based brands in its list of the world’s 100 most valuable brands. Samsung and Hyundai from South Korea, HTC from Taiwan, and Corona beer from Mexico are featured in the rankings; as such, below we have profiled the four ETFs that make the highest allocations to each of the above mentioned companies [try our Free ETF Stock Exposure Tool]:

  1. MSCI South Korea Index Fund (EWY)

Investors can gain exposure to electronics behemoth Samsung (SSNLF) through iShares South Korea fund; this ETF allocates 21% of its total assets to Samsung, making it the single-largest holding in a portfolio comprised of roughly 100 securities. Manufacturing everything from tablets to smartphones to LED television sets, Samsung is regarded as a leader in the global consumer electronics market. Furthermore, the technology sector holds the top spot in EWY’s portfolio followed by consumer cyclical companies; Hyundai is also found in the top ten holdings, although the ETF profiled below features a much heftier allocation to this automotive giant [see also 5 ETFs For Fiscally-Sound Emerging Markets].

  1. MSCI Emerging Markets Consumer Discretionary Sector Fund (EMDI)

You can find exposure to Hyundai Motors (005380) in a handful of ETFs, although EMDI features by far the biggest allocation; this ETF dedicates 12% of total assets to Hyundai, making a viable instrument for those looking to overweight exposure to this brand name. Hyundai vehicles are sold in 193 countries around the globe and boast a growing popularity among U.S. consumers, making this brand quite attractive to those with a long-term investment horizon. From a country breakdown perspective, South Korea tops the list in EMDI’s underlying portfolio followed by South Africa and China.

  1. MSCI Taiwan Index Fund (EWT)

Smartphone manufacturer HTC gets a lot of love from Android fans but very little attention from exchange-traded funds; EWT is currently the only ETF that features exposure to this rapidly growing device manufacturer, allocating close to 3% of its total assets to HTC stock. The company faces stiff competition from Apple and Samsung, although its growing presence and importance in the smartphone industry is undeniable. From a sector breakdown perspective, EWT is heavily tilted towards technology stocks with financial services and consumer cyclical companies accounting for the next largest allocations [see also ETFs For The Touchscreen Revolution].

  1. MSCI Mexico Index Fund (EWW)

Joining the ranks of Budweiser and Heineken in the world of alcoholic beverages is Mexico’s Corona; in fact, Corona Extra is the top-selling imported beer in the United States. This globally-known pale lager is owned and produced by Grupo Modelo (GPMCF), which belongs in the top ten holdings of EWW, accounting for just over 3% of total assets. EWW’s basket of holdings is fairly well-balanced overall; the consumer defensive and communication services sectors account for the greatest portion of assets while basic materials, consumer cyclical, financial services and industrials all receive adequate allocations as well.

Follow me on Twitter @SBojinov

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.