In a global economy, where what happens in one country can have ripple effects around the world, investors are discovering the value of investing outside the United States. Emerging markets are countries that are in a strong growth phase, as opposed to more established nations that see more gradual growth. There are several benefits to investing in emerging markets; while this segment of the market is still viewed as risky, the higher returns often counter-balance this risk for investors seeking to jump-start their portfolio. The returns are also not necessarily correlated to the U.S. market, providing a diversification benefit [see also Free Report: How To Pick The Right ETF Every Time].
While India, Brazil, China and other Asian countries usually receive the most press in terms of “emerging markets,” countries in Europe provide a whole other realm of potential. There are a number of Emerging Europe ETFs, providing access to countries like Russia, Poland and Turkey. These ETFs allow you invest in one particular country, or to invest in a group of emerging European nations.
If you are looking to gain broad exposure to emerging European markets through one ETF, then you have two options:
- SPDR S&P 500 Emerging Europe ETF (GUR, A-): This fund invests in companies that are included in the S&P 500 European Emerging Capped BMI Index. It generally tracks the performance of the index, but may deviate since the fund doesn’t invest in all the stocks of the underlying index. The fund has significant weightings in Russia, Turkey and Poland, with small holdings in Czech Republic, Hungary, United Kingdom and the Netherlands. About one-third of the fund’s assets are in the energy sector [see Emerging & Frontier Markets ETFdb Portfolio].
- MSCI Emerging Markets Eastern European Index Fund (ESR, B-): This fund seeks to correspond to the “general” price performance of the MSCI Emerging Markets Eastern Europe Index. This fund is slightly less diversified, having more assets in both the energy sector, and the vast majority of holdings are focused on Russia. The fund also has exposure to Poland, Czech Republic, Hungary and very small allocations in Ukraine and other countries.
|Ticker Symbol||ETF||Assets||Expense Ratio||Largest Country Allocation||Largest Sector Allocation|
|GUR||SPDR S&P Emerging Europe ETF||$104 M||0.59%||Russia: 57%||Energy: 36%|
|ESR||MSCI Emerging Markets Eastern European Index Fund||$26 M||0.68%||Russia: 74%||Energy: 44%|
|* As of February 2013.|
Country Specific ETFs
If you want to invest in a country-specific ETF, there are also a number of options. There are multiple Russian ETFs, including leveraged and “bear” ETFs, as well as a limited number for Poland and Turkey.
- Market Vectors Russia ETF (RSX, A-): This ETF attempts to correspond to the price and yield performance of the Market Vectors Russian Index. It is an active fund with $1.7 billion in assets, and it has an expense ratio of 0.62%. Typical volume is near four million shares per day.
- MSCI Russia Capped Index Fund (ERUS, A-): This fund generally tracks the MSCI Russia 25/50 Index. It is also actively traded (but less so than RSX) with assets totaling $255 million and an expense ratio of 0.58%.
- SPDR S&P Russia ETF (RBL, B+): This ETF is a small fund of $36 million, tracking the general performance of the S&P Russia Capped BMI Index. Its expense ratio is 0.59%
- Daily Russia Bull 3X Shares (RUSL, B-): This leveraged fund seeks daily performance of 300% (or three times) the performance of the Market Vectors Russia Index. Highly volatile, the expense ratio is 0.95% with nearly $22 million under management.
- Market Vectors Russia Small-Cap ETF (RSXJ, B): This ETF invests in smaller companies within Russia, attempting to track the price and yield performance of the Market Vectors Russia Small-Cap Index. It has an expense ratio of 0.67% with just over $10 million in assets. This fund has the lowest daily average volume—near 15,000 shares—of the Russian ETFs.
- Daily Russia Bear 3X Shares (RUSS, C+): This ETF moves inversely and three-fold the magnitude of the Market Vectors Russia Index. The fund is small, with less than $8 million in assets, and has an expense ratio of 0.95%.
For those looking to invest in Poland, there are two options. The MSCI Poland Investable Market Index Fund (EPOL, B+) is the more active of the funds, trading nearly 180,000 shares per day with $181 million under management. Its expense ratio is 0.59% and attempts to mimic the price and yield performance of the MSCI Poland Investable Markets Index [see 17 ETFs For Day Traders].
The other option is the Market Vectors Poland ETF (PLND, B). It tracks the Market Vectors Poland Index and has an expense ratio of 0.60%. The fund is less active, with daily volume near 13,000 shares and $32 million in assets.
The MSCI Turkey Investable Market Index Profile (TUR, A-) gives you exposure to the Turkish equity market. The fund attempts to replicate the price and yield performance of the MSCI Turkey Investable Market Index. The expense ratio is 0.61%. The fund has $857 million in assets and trades just under 350,000 shares per day on average [Download 101 ETF Lessons Every Financial Advisor Should Learn].
The Bottom Line
If you are looking outside the United States for investment ideas, European emerging market ETFs provide can provide lucrative opportunities, and since there are multiple products available, you can likely find what you’re looking for. ETFs such as GUR or ESR give you exposure to multiple emerging European countries through a single ticker, while country-specific ETFs such as RSX for Russia, EPOL for Poland or TUR for Turkey let you participate in the ups and downs of these particular emerging equity markets.
Disclosure: No positions at time of writing.