Emerging markets ETFs expected to outperform as IFAs shun Europe

Jul 30th, 2012 | By | Category: Equities

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Research from Legal & General Investments shows emerging markets to be the most popular geographical investment destination in the next six months, with two fifths (40%) of independent financial advisers (IFAs) choosing it as the likely best performer in the short term.

Emerging markets ETFs expected to outperform as IFAs shun Europe

Emerging markets expected to outperform as IFAs shun Europe.

The findings come from Legal & General Investments’ annual What Matters Investment Index, which aims to investigate the views of the IFA community, tracking how sentiment and behaviour changes over time.

IFAs expect the second best performer over the next six months to be the United States with almost a fifth (18%) anticipating strong results in this region. This is closely followed by Asia Pacific (ex Japan) with a little over one in seven (14%) of the vote, whilst confidence in the UK is middling with only one in twelve (8%) expecting it to be the best performing through the next six months.

In contrast to the buoyancy felt about emerging markets, United States and Asia Pacific (ex Japan), IFAs are highly sceptical about the prospects for Europe with its ongoing economic difficulties. Only 3% of IFAs believe Europe will perform best in the next six months.


PowerShares FTSE RAFI Emerging Markets ETF (PSRM)

– Tracks the FTSE RAFI Emerging Markets Index,
comprising over 350 emerging market companies

– Constituents are weighted based on fundamental
value, rather than market cap. Valuation factors
include book value, earnings, sales and dividends

– Offers elements of an active management
strategy with the benefits of passive management

– Avoids over-exposure to overvalued stocks,
while increasing exposure to undervalued stocks

– UCITS compliant, London-listed, UK Fund Reporting
Status, eligible for ISAs and SIPPS, TER 0.65%

Simon Ellis, Managing Director, Legal & General Investments, said: “It is no surprise that Europe is the geography about which IFAs are most cynical when you consider the region’s ongoing problems and lack of obvious resolution. With good growth and employment figures coming out of the United States, and the Presidential election cycle kicking into high gear, the optimism in this region is understandable.”

He continued: “Emerging markets have delivered strong performance for some years and advisers clearly believe this trend will continue. Many clients want to invest in regions with higher rates of economic growth, and whilst recent investment performance has been weaker than in many developed markets the long-term expectations are proving compelling.”

When it comes to emerging markets ETFs, investors are spoilt for choice with a huge range of ETFs offering broad, regional and country-specific exposure. There are also ETFs providing access to emerging markets small-caps, high-dividend yielders and specific sectors.

The following ETFs all offer broad emerging markets access and make ideal portfolio building blocks:

Vanguard FTSE Emerging Markets ETF (VFEM)
This fund seeks to track the performance of the FTSE Emerging Markets, a market capitalisation-weighted index of large and mid-cap companies in 22 emerging markets in Europe, Asia, Africa, Latin America and the Middle East. TER 0.45%

PowerShares FTSE RAFI Emerging Markets ETF (PSRM)
The PowerShares FTSE RAFI Emerging Markets ETF is based on the FTSE RAFI Emerging Markets Index. This index is designed to track the performance of companies with the largest RAFI fundamental value based on book value, earnings, sales and dividends. The 350 equities with the highest fundamental strength are weighted by their fundamental scores. The fund is rebalanced and reconstituted annually. TER 0.65%

The following ETFs track the MSCI Emerging Markets Index. The MSCI Emerging Markets Index is a free float-adjusted market-capitalisation index that is designed to measure the equity market performance of emerging markets. The index, which tracks the performance of the largest companies in Brazil, Chile, China, Columbia, Czech Republic, Egypt, Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey, is the most widely followed gauge of emerging markets equity performance. China, South Korea, Brazil, Taiwan and South Africa are the countries with the largest weights.

Amundi ETF MSCI Emerging Markets – USD (AUEM)
TER 0.45%

HSBC MSCI Emerging Markets ETF (HMEF)
TER 0.60%

SPDR MSCI Emerging Markets ETF (EMRG)
TER 0.65%

DB X-trackers MSCI Emerging Markets TRN Index ETF (XMEM)
TER 0.65%

Lyxor ETF MSCI Emerging Markets (GBP)- NTR (LEME)
TER 0.65%

CS ETF MSCI Emerging Markets (CM1)
TER 0.68%

UBS-ETF MSCI Emerging Markets A (UB32)
TER 0.70%

iShares MSCI Emerging Markets ETF (IEEM)
TER 0.75%

MSCI Emerging Markets Source ETF (MXFS)
TER 1.05%

The following two funds offer access to the BRICs (Brazil, Russia, India and China), the four largest emerging markets (as measured by GDP):

RBS Market Access DAXglobal BRIC Index ETF (BRDX)
The RBS Market Access DAXglobal BRIC Index ETF tracks the DAXglobal BRIC Index. This index reflects the performance of companies from Brazil, Russia, India and China that trade as either depositary receipts (ADRs/GDRs) for Brazilian, Indian or Russian companies, or H shares for Chinese companies. The index includes 40 companies with each country represented through its ten largest companies as measured by market capitalisation. The maximum weight per country in the index is 35% and the maximum weight per company is 10%. TER 0.70%.

iShares FTSE BRIC 50 (BRIC)
The iShares FTSE BRIC 50 ETF aims to track the performance of the FTSE BRIC 50 Index. The FTSE BRIC 50 offers exposure to the 50 largest stocks measured by full market capitalisation, that trade as either depositary receipts (DRs) for Brazilian, Indian or Russian companies, or H shares for Chinese companies. China makes up over 46% of the fund. TER 0.74%.

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