Market Overview

4 Thinly Traded EM ETFs Outpacing More Popular Rivals


Average daily volume is arguably a superficial statistic, but for many traders and investors, it remains an important way of quantifying the quality of some ETFs. Research shows liquidity is not as much of a concern as some have made it out to be with ETFs. In fact, research indicates select thinly traded ETFs focused on U.S. equities outperform more heavily traded equivalents.

Actually, it is easier than some might expect to find lightly traded ETFs across myriad sectors that are generating returns superior to the more heavily traded funds.

This scenario plays out frequently in the emerging markets universe, one result of the rising number of emerging markets funds available to investors.

Even with the increased number of emerging markets funds on the market, the usual suspects still control the bulk of the assets under management and average daily volume for this asset class. In this case, "usual suspects" means ETFs such as the Vanguard MSCI Emerging Markets ETF (NYSE: VWO), the iShares MSCI Emerging Markets Index Fund (NYSE: EEM) and the iShares FTSE China 25 Index Fund (NYSE: FXI), just to name three.

Here are some thinly traded emerging markets ETFs that are generating superior alpha compared to their more popular counterparts.

iShares FTSE China (HK Listed) Index Fund (NASDAQ: FCHI)Compare the holdings and the weights of the largest holdings of the iShares FTSE China (HK Listed) Index Fund against iShares FTSE China 25 Index Fund and it is easy to see the differences are, for the most part, slight. However, FCHI holds 121 stocks compared to just 26 for FXI. Both ETFs charge 0.72 percent per year, but FCHI's focus on Hong Kong-listed shares has proven beneficial to investors. In the past year, year-to-date and in the past 90 days, FCHI has soundly outperformed FXI. That is despite the fact that FXI has over $4.4 billion in AUM compared to just $28.3 million for FCHI. FCHI's average daily volume is 2,740 shares. An average day for FXI sees more than 18.2 million shares change hands. First Trust Brazil AlphaDEX Fund (NYSE: FBZ) Most investors that have played Brazil via ETFs know about the iShares MSCI Brazil Index Fund (NYSE: EWZ). Home to $7.2 billion in AUM, EWZ is not only far and away the largest ETF tracking Brazil, it is one of the largest country-specific funds tracking any country. Period. In a prime example of bigger is not always better, FBZ, with all of $6.48 million in AUM, has outperformed EWZ over the past year, year-to-date and in the past 90 days. FBZ seems to be benefiting from lower weights to Petrobras (NYSE: PBR) and Vale (NYSE: VALE), two marquee Brazilian resources names that have plagued EWZ. Barely more than 4,100 shares changes hands per day in FBZ compared to almost 18 million in EWZ. PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSE: EELV) The PowerShares S&P Emerging Markets Low Volatility Portfolio, which debuted in January, is a direct rival to the iShares MSCI Emerging Markets Minimum Volatility Index Fund. However, while it may appear the two funds do exactly the same thing, that is offering emerging markets exposure with a low volatility twist, there are significant differences between the two. For starters, the iShares offering has over $215 million in AUM and ADV of 83,000 shares. EELV has just $5.2 million in AUM and ADV of less than 5,300 shares. EELV's diminutive stature might lead some to ignore the ETF, but based on performance, that should not be happening. Year-to-date, the PowerShares offering is the winner and over the past three months, the performance gap grows to 215 basis points. SPDR S&P Emerging Latin America ETF (NYSE: GML) It has been a rough year for many ETFs tracking Latin America, particularly those with heavy weights to Brazil, but the SPDR S&P Emerging Latin America ETF has at least one point in its favor. The ETF has outpaced the iShares S&P Latin America 40 Index Fund on a year-to-date basis. This rivalry is another case of two ETFs that appear to do the same thing, but because the funds track different indexes, the performances significantly diverge. GML and ILF are home to many of the same marquee Latin America stocks, but with different weightings. That leaders to the performance gap over most relevant time frames. Year-to-date and in the past month, GML is the winner, but over the past 90 days, ILF has been the better option. With over $1.6 billion in AUM, ILF has ADV of almost 931,000 shares. By comparison, GML has almost $110 million in AUM and ADV of less than 14,000 shares. For more on obscure international ETFs, click here.


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