Broadly speaking, emerging markets funds are getting slammed this year. The widely followed MSCI Emerging Markets Index, which serves as the benchmark for a slew of active and passive emerging markets funds, is down nearly 15% year-to-date.
The Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO), the largest emerging markets exchange-traded fund, is down more than 16% this year. Rising U.S. interest rates, the strong dollar and trade spats, particularly the one between the U.S. and China, are among the factors hampering emerging markets funds this year.
Even previously high-flying emerging markets funds are slumping. Funds tracking stocks in Saudi Arabia recently tumbled amid the controversy surrounding journalist Jamal Khashoggi’s death.
“Saudi Arabia, a top crude oil exporter, faces international pressure to provide all the facts about an incident that has raised a global storm and added the threat of sanctions against the kingdom to a list of market concerns,” according to Reuters.
For daring investors or those looking for what could turn out to be good deals, here are some emerging markets funds to consider.
iShares MSCI Mexico ETF (EWW)
Expense Ratio: 0.49%, or $49 annually per $10,000 invested.
The iShares MSCI Mexico ETF (NYSEARCA:EWW) is the largest emerging markets fund dedicated to stocks in Latin America’s second-largest economy and it is down 4% year-to-date. No, that performance is not anything to brag about, but it is far better than that of the MSCI Emerging Markets Index and a number of single-country emerging markets funds.
Elections have been important factors in several Latin American markets this year, including Mexico. Anti-establishment candidate Andrés Manuel López Obrador (AMLO) won Mexico’s presidential election earlier this year, a result mostly cheered by investors.
“AMLO’s ascent heralds the end of decades of technocratic governments made up of traditional parties that pursued economically conservative policies,” said BlackRock. “A majority in Congress would give AMLO leeway for making significant policy shifts. It could also lead to a steady decline in Mexico’s institutional strength, although we see the central bank’s independence as relatively resilient.”
Unfortunately, much of the post-election shine has worn off EWW as this emerging market fund is down almost 9% in the fourth quarter.
iShares MSCI Taiwan ETF (EWT)
Expense Ratio: 0.62%
Like the aforementioned EWW, the iShares MSCI Taiwan ETF (NYSEARCA:EWT) is another emerging markets fund that is performing less poorly than broader developing world benchmarks. EWT is down less than 7% year-to-date.
This emerging markets fund, which is the largest ETF tracking stocks in Taiwan, is often embraced by investors because Taiwan is docile relative to other emerging economies. EWT’s three-year standard deviation of 12.08% is below that of the MSCI Emerging Markets Index.
This emerging markets fund has another trait conservative investors will like: income potential. EWT has a trailing 12-month dividend yield of 2.69% and Taiwan is one of the most dependable markets for dividend growth among emerging economies.
WisdomTree India Earnings Fund (EPI)
Expense Ratio: 0.84%
One of the major problems confounding emerging markets funds this year is the stronger U.S. dollar, a scenario that is particularly problematic for countries burdened with heavy amounts of dollar-denominated debt. On that basis, India and emerging markets funds, such as the WisdomTree India Earnings Fund (NYSEARCA:EPI), look attractive.
Regarding India’s debt, “There is a positive relation between the debt to GDP ratio and the level of GDP per capita. If you compare around the world with the best economies or emerging market economies, the level of debt in India is lower,” said the International Monetary Fund’s director of fiscal affairs Vitor Gasper.
The $1.35 billion EPI holds about 338 stocks, most of which are large caps. EPI devotes nearly 40% of its combined weight to the financial services and energy sectors.
KraneShares MSCI All China Health Care Index ETF (KURE)
Expense Ratio: 0.82%
Healthcare is one of the best-performing sectors in the U.S. this year, but the sector’s usually defensive reputation is being betrayed in emerging markets, including China. The KraneShares MSCI All China Health Care Index ETF (NYSEARCA:KURE) is proof of those struggles as this emerging markets fund is down nearly 20% since its January debut.
When considering the stout fundamentals underpinning China’s healthcare market, KURE could be an emerging markets fund for investors willing to be patient and those that see value emerging following the ETF’s 2018 struggles.
“China currently has the fastest growing major healthcare market in the world with a five-year compound annual growth rate of 17%, compared to just 4% in the United States, and -2% in Japan,” according to KraneShares. “China is the second largest healthcare market globally with total healthcare expenditure reaching $594 billion in 2015. A number projected to reach $1.1 trillion by 2020.”
ALPS Emerging Sector Dividend Dogs ETF (EDOG)
Expense Ratio: 0.60%
The ALPS Emerging Sector Dividend Dogs ETF (NYSEARCA:EDOG) is an emerging markets fund that is positioned as a high-yield value fund. EDOG’s trailing 12-month dividend yield of 4% is about 175 basis points higher than the comparable yield on the MSCI Emerging Markets Index. This emerging market fund employs a different methodology than other emerging markets funds.
EDOG looks to “identify 5 highest yielding securities (based on regular cash dividends) in each of the 10 Global Industry Classification Standard (GICS) sectors as of last trading day of November. The annual reconstitution date is the third Friday in December,” according to ALPS.
EDOG’s underlying index also caps country and sector weights at 10% and individual security weights at 2%. As just two examples, this emerging markets fund is significantly overweight Russian and Turkish equities relative to the MSCI benchmark.
John Hancock Multifactor Emerging Markets ETF (JHEM)
Expense Ratio: 0.55%
The John Hancock Multifactor Emerging Markets ETF (NYSEARCA:JHEM) is one of the newest emerging markets funds, having debuted just last month, but JHEM’s rooking status should not deter investors from considering the fund.
Among emerging markets funds, some multi-factor ETFs have found success. JHEM could be next. This emerging market fund’s underlying index “screens components based on smaller market capitalizations; lower relative price as defined by price-to-book; and higher profitability as defined by operating income over book,” according to ETF Trends.
Focusing on stocks with quality and value traits could serve JHEM going forward because both of those investment factors historically deliver solid long-term returns. By allocating over 52% of its weight to China, South Korea and Taiwan, this emerging markets fund also tilts toward some of the less volatile developing economies.
Global X China Consumer ETF (CHIQ)
Expense Ratio: 0.65%
China ETFs of all varieties are among this year’s worst-performing emerging markets funds and the Global X China Consumer ETF (NYSEARCA:CHIQ) has not been immune from that ominous trend. Much of that trend is attributable to the U.S. and China displaying hostility toward one another on the trade front, a scenario bound to plague consumer stocks.
Roughly a third of CHIQ’s weight is allocated to consumer staples stocks, but that has not been enough to insulate this emerging markets fund from selling pressure. With its roughly two-thirds tilt to consumer cyclical names, CHIQ is heavily allocated to Chinese internet stocks, a group that is getting drubbed this year.
On the upside, Chinese internet stocks have previously delivered jaw-dropping performances and with this year’s declines, the group is discounted relative to U.S. rivals.
Todd Shriber owns shares of VWO.