The One Emerging Market ETF To Own (ECON, EEM)
The emerging markets have not been the hottest place to invest past year as they began to lag the developed markets. The iShares MSCI Emerging Market ETF (NYSE: EEM) is down six percent in 2013 versus a gain of 16 percent for the SPDR S&P 500 ETF (NYSE: SPY).
Individual emerging market country ETFs have performed even this year, with several hitting new 52-week lows. So why in the world would an investor even considering investing in the asset class?
For starters, the valuations for the emerging markets have come down to attractive levels versus the developed markets and the growth potential remains above average.
There is also the fact that not all emerging market countries are the same and not all ETFs are created equally. This is where the one emerging market ETF to own is introduced.
The EG Shares Emerging Markets Consumer ETF (NYSE: ECON) is a basket of 30 stocks that are in the consumer goods and services industries.
The top countries represented include Mexico, South Africa, Brazil, India, and Chile. In 2013 the ETF is up two percent, easily beating the benchmark, MSCI Emerging Markets Index. Going back to the beginning of 2012 the ETF is up 23 percent versus a gain of nine percent for EEM.
The reason for the outperformance is simple.
The companies in ECON cater to the local customer, whereas EEM is composed of companies that are multinationals and generate a majority of their business around the globe.
As the middle class continues to expand in the emerging markets, the locals will have the ability to spend more disposable income and the beneficiaries will be the local retailers. ECON is the best-positioned play for the true growth of the emerging markets.
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