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From 2024’s low in mid-January to its high in mid-April, the MSCI Emerging Markets Index gained more than 10%, providing investors with some of the emerging markets best returns in the past few years and giving investors a reason to buy emerging markets ETFs for the first time in a long while.
The index represents 24 emerging markets countries, accounting for 85% of each country’s free float-adjusted market capitalization.
Over the past five years, the MSCI Emerging Markets Index generated an annualized total return of 2.22% through March 29, considerably worse than the 12.07% from the MSCI World Index, which represents large-cap and mid-cap stocks from 23 developed countries, including the U.S.
With the near-term gains, emerging markets could be in for more gains in 2024 and 2025.
“There are strong country-specific stories happening in EM,” Bloomberg reported April comments from Malcolm Dorson, head of emerging market strategy at Global X. “China is back into expansionary territory with GDP upgrade momentum, while Taiwan and Korea are prime to benefit from semiconductor demand.”
Here are three emerging market ETFs exposed to China, South Korea and Taiwan.
JPMorgan Active China ETF (JCHI)
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Of the three countries, China has the most choices available. JPMorgan Active China ETF (NYSEARCA:JCHI) is an actively managed ETF with just $10.13 million in net assets. However, it does have a Bronze rating with Morningstar.com, so don’t be scared by its lack of assets.
To get a better on-the-ground view of Chinese companies, it leans on research analysts with local knowledge to help the portfolio managers uncover diamonds in the rough that are attractively valued leaders in their industries.
The two portfolio managers, Li Tan and Rebecca Jiang, have a combined 31 years in the investment industry. The fund has a reasonably focused portfolio with just 50 holdings. They turn the entire portfolio every five to six years.
The top three sectors by weight are communication services at 19.0%, consumer discretionary at 18.8% and financials at 15.3%. Technology is in the fourth spot at a smallish 14.8% relative to other ETFs.
Many of the names in the top 10 holdings, which account for 45% of its net assets, are names familiar to North Americans, such as Tencent Holdings (OTCMKTS:TCEHY) and Alibaba Group (NYSE:BABA).
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The iShares MSCI South Korea ETF (NYSEARCA:EWY) is the largest South Korean ETF with net assets of $5 billion. It charges 0.59%, which is reasonable for emerging markets ETFs. Since its inception in May 2000, it has gained 221% on a cumulative basis.
The ETF tracks the performance of the MSCI Korea 25/50 Index, a collection of large-cap and mid-cap South Korean stocks. The 25/50 means no single stock can account for more than 25% of the net assets, and the sum of stocks with weights higher than 5% can’t exceed 50%.
The average market cap of its holdings is $33.65 billion, considerably less than the index’s average of $48.68 billion. Mid-caps account for one-third of the net assets, with large caps accounting for the rest.
The top three sectors by weight are technology at 37.02%, industrials at 15.16% and financials at 12.23%. The portfolio has 100 stocks, with the top 10 accounting for 51%.
The average P/E, P/B, and P/S ratios are 11.3x, 0.98x, and 0.71x.
Franklin FTSE Taiwan ETF (FLTW)
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Morningstar.com five-star-rated Franklin FTSE Taiwan ETF (NYSEARCA:FLTW), with $212 million in net assets might not be the largest one in Taiwan, it has a lot of potential and should be considered.
One thing to like about FLTW is that it charges just 0.19%, 40 basis points less than the iShares MSCI Taiwan ETF (NYSEARCA:EWT). It’s a no-brainer, given they both track the performance of capped 25/50 Taiwan indexes. FLTW has 123 holdings, while EWT has 91.
Its holdings’ weighted average market cap is $135.02 billion, with P/B and P/E ratios of 2.1x and 19.7x, respectively. The top three sectors by weight are technology at 63.43%, financials at 18.03% and materials at 5.09%.
The top 10 holdings account for 45% of the net assets. Large caps account for 93%, mid-caps at 6% and small caps at 1%. It turns the entire portfolio once every eight years or so.
Over the past five years, it has had an annualized total return of 13.33%, 20 basis points higher than EWT. Fees matter.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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