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A Pleasant Surprise Among Emerging Market ETFs

Broadly speaking, these are not the best of times for emerging market exchange traded funds. India large-cap ETFs have been significantly better or less bad than other single-country and diversified emerging markets ETFs over the past month. In the near term, India ETFs could pullback following the Reserve Bank of India’s decision Tuesday to hold interest rates at 7.25 percent. By Todd Shriber, ETF Professor Broadly speaking, these are not the best of times for emerging market exchange traded funds. Things are so bad that 22 emerging markets funds hit 52-week lows on Monday. Since the star of the current quarter, the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) has bled nearly $2.5 billion in assets. However, there is some light among the darkness and it comes courtesy of Indian small-caps. India large-cap ETFs have been significantly better or less bad than other single-country and diversified emerging markets ETFs over the past month, but funds such as the Market Vectors India Small-Cap Index ETF (NYSEARCA: SCIF ) , the EGShares India Small Cap ETF (NYSEARCA: SCIN ) and the iShares MSCI India Small Cap Index ETF (BATS: SMIN ) have legitimately impressed . While the MSCI Emerging Markets Index has tumbled 5.6 percent over the past month, the aforementioned trio of India small-cap ETFs posted an average return of almost 5.5 percent. This is not unfamiliar territory for India ETFs, which were the shining stars of the BRIC quartet last when emerging markets equities slumped. In the near term, India ETFs could pullback following the Reserve Bank of India’s decision Tuesday to hold interest rates at 7.25 percent, but the central bank has obliged with three rate cuts earlier this year, at least two of which can be considered surprises. Interestingly, the gains for Indian small-caps over the past month arrived as investors pulled $35 million from Indian stocks last month, still a scant percentage of the $7.1. billion that has flowed into stocks in Asia’s third-largest economy this year, according to Bloomberg . Divergent Returns Significant differences between the India small-cap ETFs tell the story of divergent returns. For example, the Market Vectors India Small-Cap Index ETF features a 21.2 percent to consumer discretionary stocks, leveraging the ETF to India’s burgeoning consumer story. SMIN, the iShares offering, is also a play on India’s resurgent domestic economy with a 44.3 percent allocation to financial services and industrial names. The EGShares India Small Cap ETF devotes over half its weight to financial stocks and industrials. A BlackRock fund manager recently sounded a bullish tone on Indian non-bank financials and select sub-sectors of the industrial space. Though the fund manager did not mention the ETFs highlighted here, institutional support for Indian small-caps should drive the likes of SCIF, SCIN and SMIN higher. Indian small-caps are not a bump-free ride. For example, SCIF has a three-year standard deviation of almost 32 percent, or 2 1/2 times that of the MSCI Emerging Markets Index. However, Indian small-cap, at least as measured by SCIF and SCIN, are not excessively valued. SCIF sports a price-to-earnings ratio of just 11 , while SCIN’s price-to-book ratio is just 1.16. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

4 Outperforming Country ETFs Of 2014

Amid a myriad of economic and political woes, the stock markets across the globe have given mixed performances. While 2014 is turning out as another banner year for the U.S. stock market with multiple record highs on several occasions, international investing has not been so encouraging. This is especially true as Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ) targeting the international equity market has lost about 4% this year compared to a gain of 5.3% for iShares MSCI ACWI ETF (NASDAQ: ACWI ) , which targets the global stock market including the U.S. A strong dollar, Russia turmoil, slump in key emerging markets, sliding oil prices, speculation of interest rates hike faster than expected, and concerns over the global slowdown continued to weigh on the international stocks. Though developed markets started the year on a solid note, these lost momentum with Europe struggling to boost growth and inflation, and Japan suffering from the biggest setback following a sales tax increase in April that has pushed the world’s third-largest economy into a deep recession. Among developing nations, Russia has been hit hard owing to Western sanctions and a massive drop in oil prices while Greece saw another political chaos. On the other hand, India and Indonesia have shown strong resilience to the global slowdown driven by positive developments, election euphoria, new reforms and monetary easing policies. In particular, Chinese stocks have no doubt given impressive performances with the Shanghai Composite Index touching the major threshold of 3,000 for the first time in three years. The massive gains came on the back of speculation that the loose monetary policy measures will revive the dwindling economy and pump billions of dollars into the country. Additionally, growing investor confidence following prospects of a rebound in the Chinese economy, a stabilizing real estate market as well as the launch of the Shanghai-Hong Kong Stock Connect program propelled the Chinese stocks higher in recent months. There are several country ETFs that not only delivered handsome returns this year but also crushed the broad U.S. market fund. Below, we have highlighted a few of these strong momentum plays, which could be interesting picks for investors heading into the New Year. iShares MSCI India Small Cap Index Fund (BATS: SMIN ) – Up 48.3% This product provides exposure to the small cap segment of the broad Indian stock market by tracking the MSCI India Small Cap Index. Holding 180 securities in its basket, it is widely spread out across number of securities with none holding more than 2.67% of assets. Financials takes the top spot with one-fourth share followed by consumer discretionary (19.8%), industrial (18.4%) and materials (10.2%). The fund has been able to manage assets worth $24.1 million while sees light volume of about 16,000 shares per day. Expense ratio came in at 0.74%. SMIN is up over 48% this year and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook. PowerShares China A-Share Portfolio (NYSEARCA: CHNA ) – Up 43.18% This is an actively managed ETF providing exposure to the China A-Share market using Singapore exchange FTSE China A50 Index futures contracts. The product is unpopular and illiquid with AUM of $5.3 million and average daily volume of around 8,000 shares. It charges 51 bps in fees per year from investors and has surged about 43% this year. iShares MSCI Philippines Investable Market Index (NYSEARCA: EPHE ) – Up 22.4% This product targets the Philippines stocks in the emerging Asia Pacific space and tracks the MSCI Philippines Investable Market Index. The fund has amassed $365.3 million in its asset base while trades a good volume of 236,000 shares a day. It charges 61 bps in annual fees. The fund holds a small basket of 43 firms with 61.5% of assets invested in the top 10 holdings, suggesting a high concentration risk. More than one-third of the portfolio is dominated by financials while industrials occupy the second position with 22.4% share. The fund has added over 22% this year and has a Zacks ETF Rank of 3 or ‘Hold rating with a Medium risk outlook. iShares MSCI Indonesia Investable Market Index Fund (NYSEARCA: EIDO ) – Up 20.76% This fund provides exposure to the Indonesian equity market by tracking the MSCI Indonesia Investable Market Index. Holding 102 securities in its basket, it is concentrated on both sectors and securities. The product puts about 44% in the top five holdings while financials dominates the fund’s return at 37.1%. EIDO is the most popular ETF with AUM of $578.4 million and average daily volume of nearly 665,000 shares. Expense ratio came in at 0.61%. The fund is up 20.8% so far in the year and has a Zacks ETF Rank of 2 with a High risk outlook. Bottom Line Investors should note that some specific emerging market ETFs have outperformed this year and will likely continue this trend in 2015. This is especially true, as a slump in oil price has created a major headwind for many key emerging nations or oil producing nations. Also, some developed economies are facing problems in reinvigorating growth.