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3 ETFs For Emerging Markets Tech Exposure

May 27, 2013 1:11 pm
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3 ETFs For Emerging Markets Tech Exposure

No Google (NASDAQ: GOOG). No Apple (NASDAQ: AAPL). No Amazon (NASDAQ: AMZN) or Netflix (NASDAQ: NFLX), either. Those technology and Internet darlings, along with other noteworthy, similar U.S.-based fare, do not populate emerging markets ETFs with a heavy bias to the technology sector.

That has not been a problem this year as some emerging markets tech ETFs have enjoyed stealth rallies. These ETFs usually are not investors’ first stopping point when it comes to developing world investments, but the good news there may be more upside in store.

Emerging markets technology shares not only trade at discounts relative to more defensive sectors, the group is also home to strong earnings momentum and could see some dividend increases due to sturdy balance sheets, Barron’s reported last week, citing a UBS research note.

Those positive catalysts could drive the following ETFs higher this year.

EGShares Technology GEMS ETF (NYSE: QGEM)
The EGShares Technology GEMS ETF, which turns two in a few weeks, may be an ETF that many investors have not heard of. However, QGEM is home to several stocks U.S. investors are likely familiar with, including Infosys (NYSE: INFY), Baidu (NASDAQ: BIDU) and Sina (NASDAQ: SINA). Hint: China and India combine for almost 82 percent of this ETF’s weight.

Cozying up to QGEM means investors need to think outside of the box a bit because the ETF is not large by assets, nor is it heavily traded with average daily volume of just 380 shares. Still, must be remembered that many of QGEM’s holdings trade millions of shares per day, either in the U.S., China or India or all three.

Additionally, the ETF rarely trades at excessive premiums to its net asset value. In the first quarter of this year, QGEM’s largest premium to NAV was just 0.48 percent, according to issuer data. QGEM is up 8.1 percent in the past month, a performance that easily tops some of the more popular U.S.-focused tech ETFs.

iShares MSCI All Country Asia Information Technology Index Fund (NYSE: AAIT)
The also small and thinly traded iShares MSCI All Country Asia Information Technology Index Fund is not a pure play emerging markets ETF as Japan garners a 34 percent weight. That is either a good thing or a bad thing, depending on the next move in Japanese stocks.

Taiwan, South Korea and China combine for over 60 percent of AAIT’s weight. Two familiar names dominate this ETF with Samsung and Taiwan Semiconductor (NYSE: TSM) combing for 29 percent of the total weight. Of the 87 remaining stocks, none receive a weight above 5.1 percent.

AAIT has been a decent, though not spectacular performer in recent weeks. That could be a sign that while the weak yen is helping the ETF’s Japanese holdings, the strong won is proving problematic for the fund’s South Korean constituents. Split that difference, and the Taiwanese and Chinese holdings will have to do the heavy lifting here.

Guggenheim China Technology ETF (NYSE: CQQQ)
The Guggenheim China Technology ETF has surged 13.5 percent in the past month, making it one of the top-performing China ETFs of any stripe. NetEase (NASDAQ: NTES), Sina, Tencent and Baidu have been among the drivers of CQQQ’s bullish ways as that quartet combines for almost 29 percent of the fund’s weight.

CQQQ also underscores the notion that emerging market tech names are not yet richly valued as the ETF has a P/E of just 12.5 and a price-to-book ratio of 1.8, according to Guggenheim data. The Guggenheim offering has a direct competitor in the form of the Global X NASDAQ China Technology ETF (NASDAQ: QQQC), though the former is larger, more heavily traded and recently the better performer.

Another option for the investor craving exposure to Chinese tech names without the commitment of an ETF entirely devoted to one sector is the PowerShares Golden Dragon China Portfolio (NYSE: PGJ). PGJ, which has $192.4 million in AUM, devotes almost 51 percent of its weight to tech stocks and nine of its top-10 holdings, including Baidu, Sina and Ctrip.com (NASDAQ: CTRP), are tech or Internet stocks. PGJ is up 9.7 percent in the past month and the fund offers decent exposure to discretionary and health care names as well.

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