Market Overview

5 Worst ETFs Of The First Half: Emerging Markets Pain

5 Worst ETFs Of The First Half: Emerging Markets Pain

The year is half over and at this point, it's accurate to say emerging stocks and the related exchange traded funds are struggling. The widely followed MSCI Emerging Markets Index is off 7.4 percent year-to-date compared to a gain of 2.5 percent for the S&P 500.

Of the 20 worst-performing ETFs (excluding leveraged funds) on a percentage basis as of the end of the second quarter, 16 are emerging markets funds. At the regional level, Latin America has been particularly hard hit. Five of the 20 worst-performing ETFs through the first half of the year are single-country funds tracking Latin American economies.

On a related note, the S&P Latin America 40 Index is lower by nearly 12 percent this year. What follows is a collection of five of the worst non-leveraged ETFs through the first half of 2018. Two countries account for several of the worst offenders, so the funds representing those economies are grouped together, meaning seven funds are mentioned here.

iShares MSCI Turkey ETF (NASDAQ: TUR)

On a percentage basis, the iShares MSCI Turkey ETF is the worst-performing non-leveraged ETF through the first six months of 2018. By the time the second quarter closed, TUR was sporting a six-month loss of 30.46 percent.

Turkey's currency, the lira, is one of the worst performers among emerging markets currencies this year and that's saying something as that complex has been drubbed. The central bank there recently raised interest rates to 8 percent, but to little avail in terms of stemming the lira's slide.

President Tayyip Erdogan is a controversial figure whose efforts to consolidate power and potentially be Turkey's leader for life are seen weighing on the country's financial markets.

See Also: 5 Best ETFs Of The First Half: Volatility, Internet Names Rule

VanEck Vectors India Small-Cap ETF (NYSE: SCIF)

While domestic small-cap ETFs are soaring, the opposite is true of the equivalent emerging markets funds. Including the VanEck Vectors India Small-Cap ETF, several of the worst-performing emerging markets ETFs in the first half of the year are single-country small-cap funds and SCIF isn't alone among the India offenders. Two other ETFs tracking the country's small-caps are among the 20 worst-performing ETFs in the first half of the year.

SCIF lost 28.24 percent in the first six months of 2018 and now resides almost 33 percent below its 52-week high. The slides experienced by Indian small-caps are particularly concerning when noting the country's large-caps have been significantly less worse. Fears of higher repo rates and rich valuations are among the factors hampering smaller Indian stocks this year.

iShares MSCI Argentina and Global Exposure ETF (CBOE: AGT)

The Global X Argentina ETF (NYSE: ARGT), the largest Argentina ETF in the U.S., is barely behind the iShares MSCI Argentina and Global Exposure ETF for the dubious distinction of worst Argentina ETF in the first half of 2018.

Earlier this year, Argentina's central bank raised its benchmark lending rate to a jaw-dropping 40 percent to stave off another currency crisis. Additionally, there has been essentially no momentum for Argentine equities following the recent move by MSCI to elevate the country to emerging markets status. The aforementioned Argentina ETFs have traded lower since that announcement.

Argentina's economy, the second-largest in South America behind Brazil, is close to entering a recession. The country recently needed $50 billion from the International Monetary Fund (IMF), a deal that was praised by global investors.

VanEck Vectors Brazil Small-Cap ETF (NYSE: BRF)

Down 23.58 percent in the first six months of the year, the VanEck Vectors Brazil Small-Cap ETF isn't the only offender among Brazil small-cap funds. The iShares MSCI Brazil Small-Cap ETF (NASDAQ: EWZS) is lower by 23.57 percent year-to-date. Some of this is a symptom of weakness in Brazilian large caps. For example, the large-cap MSCI Brazil 25/50 Index is off almost 21 percent over the past six months.

Brazil holds national elections in early October, a factor that's already weighing on the countries equity markets.

“Wile Brazil has recovered from the economic swoon that was triggered by the oil-market collapse in 2015 and early 2016, Latin America's biggest economy still faces a massive fiscal deficit which could pressure the economy once more,” according to CNBC.

VanEck Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX)

The VanEck Vectors Rare Earth/Strategic Metals ETF isn't alone among offending funds with exposure to strategic metals as funds with exposure to lithium and uranium, just to name a couple, also slumped in the first half.

China still controls 90 percent of the global rare earths market, but India is looking to up production of the minerals used in the production of electric vehicles, smartphones, tablets and other popular products.

Volatile prices, mining challenges and moves by end users to find substitutes are among the factors that could weigh on the rare earths market going forward.

“Increasing demand for renewable energy such as hybrid automobiles, next generation rechargeable batteries, wind turbines, and biofuel catalysts are expected to boost growth of the rare earth metals market, which are used in such application,” according to Coherent Market Insights.


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