10 Emerging Markets ETFs for 2013
This is not a bold prediction, but it is reasonable to expect one of 2012's hottest asset classes to stand tall again in 2013.
Editor's Note: This content was originally published on Benzinga.com by The ETF Professor, Benzinga Staff Writer.
With 2013 finally here, reflecting back on the year that was big for exchange-traded products can provide investors with some clues regarding what themes and trends will be hot this year. This is not a bold prediction, but it is reasonable to expect one of 2012's hottest asset classes to stand tall again in 2013.
The asset class being referred to is emerging markets ETFs, both bonds and equity-based funds. While the final tally for 2012 ETF inflows has not yet been published, it is worth noting that emerging markets bond ETFs had hauled in $5.4 billion through the end of November.
In November alone, diversified equity-based emerging markets ETFs such as the iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM) raked in $1.8 billion in new capital, according to Morningstar data.
With the outlook, a bullish one at that, for emerging markets debt ETFs in 2013 having been previously highlighted, it is time to focus on which equity-based ETFs could present the best opportunities for investors looking to gain exposure to the developing world in 2013.
There are few things about this list to keep in mind. First, no fixed income funds are featured here. Second, only 10 country-specific ETFs will be featured here, in no particular order, but the universe of emerging markets funds is obviously many times larger. Third, given the sheer size of the emerging markets ETF universe, these are not the only funds that will be worth trading or investing in this year.
iShares MSCI Brazil Index Fund (NYSEARCA:EWZ): A quick recap of EWZ's 2012 performance would go like this: The largest ETF tracking Latin America's largest economy was, quite simply, one of the year's biggest emerging markets disappointments.
Coming off a year in which the fund tumbled 6.3% and was sharply outpaced by its small-cap equivalents, EWZ showed some signs of life in the last month of 2012, gaining 8.5%.
Just as EWZ's 2012 misfortunes are easy to explain, so is the 2013 outlook for this fund. Brazil's GDP has been shocking paltry in recent quarters. For the third quarter it was just 0.6$. That is not what investors are accustomed to emerging markets A smart investor is apt to wonder why it is worth taking the risk on an ETF with a beta of almost 1.8 against the S&P 500 when the US is offering far superior GDP growth.
Bottom line: EWZ can offer investors a positive reversal of fortune in 2013, but the stars need to align properly for that to happen. Economic growth must improve, the Rousseff Administration must show foreign investors that Brazil is not as politically risky as it appeared in 2012, and Petrobras (NYSE:PBR), EWZ's largest holding, must cease being the laggard among global integrated oil stocks.
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