ETF Scorecard: Emerging Markets Remain Favorite Destination

Exchange-traded funds which track emerging market equities gave investors the highest returns in 2009. These are oversimplifications to be sure, but with the MSCI Emerging Markets Index gaining 74.5% last year, people have decided not to split hairs.

Countries like China, Korea and India deserve a thorough look as those economies continue to develop and mature. As investors balance their portfolios for 2010, here's my three favorite emerging market ETF picks - along with one honorable mention.

There are a number of options for investing in both China and India. For those looking for one-stop exposure to both, there is also a fund that offers 50/50 access to companies domiciled in China and India: the First Trust ISE Chindia Fund (NYSE:FNI).

FNI obviously isn’t the only way to gain exposure to both China and India. Most emerging markets funds and all BRIC (Brazil, Russia, China and India) ETFs have significant allocations to these countries.

Claymore/AlphaShares China Small Cap (NYSE:HAO), which advanced 96.6 per cent in 2009, is still well positioned for 2010. In an already-explosive economy like China's, the small-cap firms that underlie HAO have a distinct advantage over their state-owned peers.

Information technology and commodities firms dominate PowerShares India ETF (NYSE:PIN), helping to position PIN for growing consumer demand in 2010. Holdings like Infosys Technologies and Oil & Natural Gas Corp., which helped to propel PIN more than 112 per cent during the 1-year period ending January 8, still look like promising investments in 2010.

The iShares MSCI BRIC (NYSE:BKF) ETF, whose top holdings include energy giant Gazprom and Bank of China, was the top performer in the 12 months, surging 47.18 per cent.

The iShares Taiwan ETF (NYSE:EWT) rallied 37.45 per cent as the nation's trade relations with China improved. The broader MSCI Emerging Markets ETF added 33.18 per cent.

The iShares MSCI South Korea ETF(NYSE:EWY), however, is a convenient entry-point for broad exposure to companies like Samsung and LG Electronics.

One of the best ways for U.S investors to access the Israeli market is with the iShares MSCI Israel Capped Investable Market Index Fund (NYSE:EIS). This fund tracks the MSCI Israel Capped Investable Market index, a benchmark that seeks to capture 99% of the publicly available market capitalization in the Israeli equity market.

iShares MSCI Emerging Markets (NYSE:EEM) saw $941 million flow into the fund. Also, iShares Barclays TIPS (NYSE:TIP) was still a favorite, with the eighth largest inflows in December, at $756 million.