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Magnifying Momentum In Emerging Markets

January 2, 2018 2:12 pm
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Emerging markets equities are coming off a banner 2017 in which the widely followed MSCI Emerging Markets Index surged 36.3 percent, an advantage of 1,500 basis points over the S&P 500.

With momentum at the back of emerging markets stocks and the related exchange-traded funds, investors may want to consider adding the momentum factor to their developing world investments. The PowerShares S&P Emerging Markets Momentum Portfolio (NYSE:EEMO) is one place to start.

EEMO trailed the MSCI Emerging Markets Index last year, but still gained an impressive 31.3 percent. The ETF, which will soon turn six years old, tracks the S&P Momentum Emerging Plus LargeMidCap Index.

More About EEMO's Methodology

“The S&P Momentum Emerging Plus LargeMidCap is designed to measure the performance of securities in emerging markets plus Korea that exhibit persistence in their relative performance,” according to S&P Dow Jones Indices.

Like EEMO, the index turns two in February. Momentum is a favored investment factor because some market participants believe it's predictive in nature.

“Numerous academic and practitioners’ research has shown that relative strength strategies that rank stocks based on their past returns predict relative performance over the next 3-12 months,” said S&P Dow Jones.

What Emerging Markets Have Momentum

EEMO holds 165 stocks and from a momentum perspective, the ETF's sector exposures aren't surprising and resemble those of U.S. momentum strategies. For example, EEMO allocates about 51.5 percent of its weight to the technology and consumer discretionary sectors, staples of many U.S. momentum funds.

China and South Korea combine for nearly 60 percent of EEMO's geographic exposure. Taiwan and India combine for almost 27 percent.

Investors are gravitating to EEMO. In 2017, EEMO hauled in $349.2 million of its $410.6 million in assets under management. Last year, only six PowerShares ETFs had larger inflows than EEMO, according to issuer data.

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