Be Careful With These High-Yield EM ETFs
Emerging markets are perking up a bit Tuesday and some investors are apt to say it is about time. The Tuesday gains are better than losses, though not awe-inspiring.
With major diversified emerging markets ETFs such as the iShares MSCI Emerging Markets Index Fund (NYSE: EEM) sporting double-digit losses over the past month, beleaguered investors that are still involved with these ETFs are probably happy to see one day of gains.
Unfortunately, one day of decent gains does not mean the broader woes facing many emerging markets ETFs, such as the looming end of U.S. quantitative easing, have suddenly evaporated. Perhaps the best thing that can be said of some ETFs tracking developing world nations is that those funds are cheaper today than they were a month ago.
Another issue investors need to be aware of is the high yields being sported by some emerging markets ETFs. A couple of those funds have already been examined and it was clear the yields were more a sign to stay away than to push the "buy" button. The same goes for some of the following ETFs.
EGShares Brazil Infrastructure ETF (NYSE: BRXX)
The EGShares Brazil Infrastructure ETF has a trailing 12-month yield of almost 3.9 percent, according to a Yahoo Finance and an index yield of 4.35 percent, according to issuer data. Either way, that is a pretty good yield.
BRXX's decent yield comes by way of its 33.2 percent weight to Brazilian utilities, which are usually among the higher-yielding emerging markets dividend stocks. However, government regulation is crimping the utilities sector and that is just one problem. BRXX is down almost 20 percent in the past six months.
Said another way, an infrastructure ETF devoted exclusively to the country that needs to bolster infrastructure in advance of the 2014 World Cup has tumbled even after the government there announced last August a major spending plan for public transit, roads and stadiums. Like all Brazil ETFs, BRXX is being dragged lower by the country's slowing growth and weak currency, which among other issues, have triggered a raft of anti-government protests.
iShares S&P Emerging Markets Infrastructure Index Fund (NASDAQ: EMIF)
Not to pick on infrastructure ETFs, but the iShares S&P Emerging Markets Infrastructure Index Fund does merit a place on this list. EMIF features a decent dividend yield of three percent, but the ETF's country mix is downright toxic for the current environment. China and Brazil combine for over 59 percent of the ETF's weight.
Investors that are familiar with China know that Beijing will pull the trigger on massive infrastructure spending at a moment's notice to boost the economy. As was previously mentioned, Brazil announced a $66 billion infrastructure plan last year. None of those headlines are helping EMIF as the ETF has tumbled 11 percent in the past week.
iShares MSCI South Africa Index Fund (NYSE: EZA)
The iShares MSCI South Africa Index Fund has a trailing 12-month yield of almost 3.6 percent, or roughly one-seventh the country's unemployment rate. South Africa, Africa's largest economy, is decent emerging markets dividend payer. Investors willing to stock pick among EZA's holdings can find plenty of names that yield north of five and six percent.
Additionally, South Africa's financial services and telecom sectors are home to some high yields and those groups combine for over 41 percent of EZA's weight. That does not matter because as long as precious metals prices keep tumbling, EZA's yield will keep rising because South Africa is a major gold, platinum and palladium producer.
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