When it comes to portfolio allocation, diversification is one of the key elements to any long-term, buy-and-hold strategy. An investor must fine tune their exposure to various corners of the market, as well as across the globe, to achieve a perfect balance and appropriate risk return profile. In recent years, one of the most popular diversifying sectors have been emerging market equities, as these stocks offer tremendous growth potentials and opportunities for lucrative returns. But because this corner of the market can exhibit significantly higher levels of volatility, the downside risk can sometimes be substantial, having significant impacts on bottom line returns [see Visual Guide To Major Index returns by Year].
So far in 2013, emerging market equities have suffered tremendous losses as the impact of the global economic slowdown weighs heavily on these once rapidly growing economies. The emerging economies hit hardest were once the most promising investments, namely Brazil, Russia, India, and China – the BRIC nations. A closer look at the lineup of emerging market ETFs does reveal several bright spots in 2013:
Of all of the exchange traded funds that offer exposure to emerging market equities, only seven ETFs have managed to beat the market, as represented by the S&P 500 (SPY). These funds have delivered stellar returns, logging in double-digit returns year to date [see ETFs That Lost 50% In a Single Year].
- Golden Dragon Halter USX China Portfolio (PGJ, B)
- China Technology ETF (CQQQ, B-)
- NASDAQ China Technology ETF (QQQC, C)
- Technology GEMS ETF (QGEM, C)
- Market Vectors Gulf States Index ETF (MES, B)
- ISE Chindia Index Fund (FNI, B+)
- Middle East Dividend ETF (GULF, A-)
Below we take a look at their performances year-to-date. Please note that all of the charts below are based on weekly returns, using adjusted closing prices, starting from 1/02/2013 up until 9/23/13:
Meet The Winners
Golden Dragon Halter USX China Portfolio (PGJ, B): This fund, launched in 2004, is designed to provide exposure to U.S. listed companies that derive a majority of their revenue from China. Top holdings include Baidu, Ctrip.com International, NetEase, and China Mobile. Given the fund’s unique approach to the Chinese equities market, PGJ has accumulated over $267 million in assets over the years, making it a popular choice for investors [see The Best (And Worst) Performing ETFs For Every Quarter].
China Technology ETF (CQQQ, B-): This Guggenheim offering provides targeted exposure to companies within China’s tech sector, including semiconductor manufacturers, social media companies, search engine and Web-based firms, and manufacturers of computers and other gadgets. The fund is nicely diversified across all market cap sizes, though the majority of the underlying holdings are large and mid cap companies.
NASDAQ China Technology ETF (QQQC, C): Yet another China Tech ETF, QQQC also offers similar exposure to its Guggenheim competitor, though investors should note QQQC’s relatively low trading volumes and small asset base. In addition, QQQC is heavily biased towards large cap companies, which account for more than half of the portfolio’s total assets.
Technology GEMS ETF (QGEM, C): This unique fund offers investors exposure to 30 of the largest emerging-market companies in the technology industry. Top holdings include Tencent Holdings, Baidu, Infosys, and Tata Consultancy Services. In regards to country allocations, Chinese equities make up roughly 50% of the portfolio, while Indian stocks receive a meaningful 30% of assets. QGEM also features some exposure to tech companies domiciled in Russia, Thailand, Chile, and Indonesia.
Market Vectors Gulf States Index ETF (MES, B): This Van Eck ETF is designed to provide exposure to publicly traded companies that are headquartered in countries belonging to the Gulf Cooperation Council (GCC). The majority of MES’s holdings are financial services companies, though meaningful exposure is given to the communication services, real estate, and industrials sectors. In regards to country allocations, equities from Kuwait, United Arab Emirates, and Qatar dominate the portfolio [see How To Take Profits And Cut Losses When Trading ETFs].
ISE Chindia Index Fund (FNI, B+): This fund tracks a non-market capitalization weighted index of 50 ADRs, ADSs and/or stocks of companies that are domiciled in either China or India and whose shares or ADRs are listed on a U.S. securities exchange. Holdings are nicely spread across multiple sectors, including technology, consumer, financials, and communication services. Securities from China account for more than half of the fund’s total assets, while Indian securities account for just over one-third.
Middle East Dividend ETF (GULF, A-): This WisdomTree offering tracks a fundamentally weighted index that measures the performance of companies in the Middle East region that pay regular cash dividends. Given the fund’s dividend focus, it is not surprising to see that the majority of the underlying holdings are financial and telecommunication stocks, which together account for more than 80% of GULF’s total assets. In regards to geographic diversification, the fund features exposure to Qatar, United Arab Emirates, Kuwait, Morocco, Egypt, and Oman [see also 101 High Yielding ETFs For Every Dividend Investor].
Follow me on Twitter @DPylypczak.
Disclosure: No positions at time of writing.