One Year Check: MORT, EWSM, EEMS

by on September 4, 2012 | ETFs Mentioned:

As the ETF industry continues to expand, investors are now able to pick and choose from a lineup of over 1,400 products. Whether you are looking to fine-tune exposure to a specific sector or want to apply a quantitative methodology to your investments, exchange-traded funds have provided investors with multiple low-cost and efficient options. And as issuers continue to pump out innovative ETPs year after year, there is perhaps no limit to what these financial instruments can do. Although there are numerous new funds already in the pipeline, taking a step back and looking at the performance of  ETFs that are already on the market paints a vivid picture of just how far the industry has come [find ETFs for every investment objective with the ETF Screener].

August marks the one-year anniversary of three offerings from issuers Van EckRydex and iShares. Since August of 2011, the mortgage REIT fund MORT, the equal-weighted small cap EWSM, and the emerging market ETF EEMS have gained a fair amount of traction among investors. Two have been able to provide investors with double-digit one-year returns, while the other has struggled to stay out of negative territory amidst the global economic slowdown. But since these funds have relatively short operating histories, which limit the extent of valuable historical return analysis, investors should still keep a close eye on these three ETFs in the future:

1. Market Vector Mortgage REIT Income ETF (MORT)

After the infamous housing bubble and the unprecedented market collapse in 2008, many investors had understandably sworn off any investments in real estate. And after seeing bottom lines virtually disintegrate, investors quickly disposed their portfolios of REITs, unable to tolerate such extreme volatility and high downside risk. But for those who were able to stomach the risk, investments in this frustrating asset class have certainly paid off, rewarding investors handsomely in recent years [see also 3 ETFs With Surprisingly Stellar 3-Year Returns].

And with the slow and steady rise in real estate, Van Eck’s MORT has been able to deliver an incredible 24% return to its holders over the last year and has accumulated nearly $72 million in total assets . The fund tracks the Market Vectors Global Mortgage REITs Index, a benchmark that invests in companies that derive at least 50% of their revenues from mortgage REITs. And although MORT holds a relatively shallow basket of just 20 individual holdings, it is important to remember that component companies generally have exposure to thousands of individual mortgages or other real-estate-related securities, potentially lessening the importance of balance in this corner of the markets.

2. S&P SmallCap 600 Equal Weight ETF Profile (EWSM)

In the universe of equity ETFs, market capitalization weighting strategies are incredibly dominant. But in recent years, several alternative weighting methodologies have been gaining traction. This offering from Rydex applies the popular equal-weighted methodology to the small capitalization segment of the U.S. equities market. EWSM’s strategy has certainly paid off, seeing as how the fund has gained close to 19.7% in the last year.

EWSM holds its appeal for both its exposure to small-cap stocks and its weighting methodology. Small caps have become a core asset class in many investors portfolios, seeing as how these securities, while highly volatile, have the potential to provide lucrative returns and growth opportunities to their holders. Investors may also find EWMS appealing since it steers clear of the biggest drawback of cap weighting: a tendency to overweight overvalued stocks and vice versa. Equal weighting, however, breaks the link between weight and stock price and also has the potential to avoid heavy concentrations in a handful of securities [see also Equal Weight ETFdb Portfolio].

3. MSCI Emerging Markets Small Cap Index Fund ETF (EEMS)

Considering the current global economic environment, it is perhaps no surprise to find emerging market equities struggling to stay afloat. Many developing nations are tied to the plagued eurozone region and as a result are having a difficult time maintaining adequate growth rates and financial stability. Over the last year, only a handful of funds from the ETFdb Emerging Markets Equity category have delivered positive returns. iShares’ EEMS is unfortunately not one of these ETFs as the fund has lost almost 9.7% over the last year.

But for those who are bullish on the global economic recovery, exposure to emerging markets, particularly small cap equities, could have a potentially lucrative pay off. EEMS provides “pure play” exposure to the local economies of developing nations by investing in small-cap stocks. The fund maintains a broad, well-balanced, and highly diversified portfolio of nearly 650 individual securities, featuring exposure to a number of sectors and emerging market countries [see also Emerging & Frontier Markets ETFdb Portfolio].

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Disclosure: No positions at time of writing.