Emerging Market ETFs EIS And GAF Are Lagging: Is It Time To Buy?

by on May 15, 2013 | ETFs Mentioned:

With many investors shedding their home country bias, opportunities in all market conditions have become the main staple for a diversified portfolio, and finding the next up and coming economy can lead to huge payoffs. The Middle East and Africa have been particularly overlooked, as these regions of the world have largely been inaccessible to mainstream investors in the last decade. Luckily, the growth of the ETF universe has spawned several options for those looking to gain exposure to the thriving economies of the Middle East and Africa, which boast a growing presence on the global economic stage [see Free ETF Country Exposure Tool].

Meet the CompetitorsA change in Israel's classification led to tracking error for some funds

With few ETF options for exclusive Middle East and African exposure available, it’s no surprise that these funds are often fighting each other for inflows. iShares MSCI Israel Capped Index Fund  (EIS, B-) and SPDR S&P Emerging Middle East & Africa ETF  (GAF, B-) are the two largest options available to investors, holding $76 to $84 million in total assets under management each. EIS primarily invests in the Israeli equity market with a strong tilt towards financial services and healthcare, while GAF casts a wider net with heavy investments in Egypt and Sub Saharan Africa, but an equally strong tilt towards the financial sector [also see How Volatile Is Your Long/Short ETF].

The Middle East and Africa have seen waves of protests and violence in the last five years, causing many investors to get out of the unstable markets. Both ETFs have struggled in the past, but there is also proof of outstanding returns and inflows in 2009 and 2008 [try our Free ETF Head-To-Head Comparison Tool].

The Bottom Line

With outside involvement in the Middle East and African conflicts pulling back, it looks like the countries affected will soon shift their focus into recovery efforts and improving the economy. Israel and Egypt already have a strong financial base to build upon and could see strong returns in the next few years. Investors who think the recovery is just around the corner might consider these down and out ETFs a bargain buy. 

Follow me on Twitter @lynpaintzall

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Disclosure: No positions at time of writing.