Market Overview

Checking In: A Case of Poor Timing (IDXJ, IDX, EIDO)


In life, timing can be everything. When it comes to new ETFs, timing may not be the lone determining factor in a particular fund's overall success, but it can play a part and timing does cut both ways with new ETFs.

Such is life for the Market Vectors Indonesia Small-Cap ETF (NYSE: IDXJ), the first ETF devoted exclusively to small-caps in Southeast Asia's largest economy. Regarding timing, well, IDXJ's was just bad. The fund debuted in late March just as emerging markets equities and ETFs were showing signs of tiring after their January/February runs higher.

Even before IDXJ came to market, there were signs it might not be a hit right off the bat. The dead giveaway was the fact that even while other emerging markets ETFs were thriving in the first two months of the year the Market Vectors Indonesia ETF (NYSE: IDX) and the iShares MSCI Indonesia Investable Market Index Fund (NYSE: EIDO) were struggling.

That was also the sign that if and when emerging markets ETFs were to be rejected, IDX and EIDO would be vulnerable. Indeed, that has proven to be the case. Last Friday, IDX lost 5.8% on volume that was almost six times the daily average. EIDO lost 5.9% on volume that was more than 50% above average. The two are down 15% and 14%, respectively, in the past month alone.

In other words, the struggles of the largest Indonesia ETFs, emerging markets fare in general and small-caps explain why IDXJ is more than two months old and has just $4.6 million in assets under management. In the past month, IDXJ is the worst of the Indonesia ETF trio with a loss of 18%.

Home to 26 stocks, IDXJ's sector mix isn't exactly going to insulate it from the calamity investors are having to tussle with these days. Sure, consumer staples account for 15.5% of the fund's weight, but financials and industrials represent over 55% of IDXJ's total weight.

All of this may have some folks writing-off IDXJ. Understandable at the moment, but probably not the best course of action over the long haul. As has been noted time and again, this isn't the Indonesia of the 1990s or earlier. There is credible growth story here and Indonesia could even usurp India to become the "I" in the ubiquitous BRICS acronym.

Indonesian economic growth has average 6% a year since 2008 and could reach 7% per year within the next two years. Foreign investment has been on the rise since 2010, but there is still work to be done in the eyes of Goldman Sachs, though the bank acknowledged the long-term view of Indonesia is strong.

We're not saying it's the right thing to do, but for those that are willing to take the Warren Buffett approach to Indonesia and IDXJ, they might be rewarded as Citigroup has forecast the country will have the fourth-largest economy in the world by 2040.

Waiting almost three decades isn't everyone's cup of tea and it's highly probable a bet on IDXJ pays off well before then. Just don't be fooled by the ETF's bad timing.

For more on Indonesia ETFs, please click HERE.


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