Emerging markets equities have attracted a lot of interest this year due to their strong performance; the MSCI Emerging Markets Index has gained over 26% in YTD 2017 until August 30.
If you’re invested in one of the three largest emerging market ETFs available to US investors – the Vanguard FTSE Emerging Markets ETF (VWO), the iShares Core MSCI Emerging Markets ETF (IEMG), or the iShares MSCI Emerging Markets ETF (EEM) – your investment is geographically spread in the following manner.
Though South Korea does not form part of the VWO as its benchmark provider FTSE classifies the country as a developed market, we’re going to consider the MSCI classification for this series.
Given that emerging markets have become much larger economically, and remain diverse, you may want to consider investing in particular countries after you’ve created a broad-based exposure.
So how many country specific options are available to you as an investor?
Country-focused EM ETFs
The graph below plots the number of country-focused emerging markets equity ETFs traded on US exchanges. For this purpose, we have considered both emerging and frontier markets, as defined by MSCI. Funds focused on stand-alone countries, if any, which are not included in the MSCI Emerging or Frontier Markets indices, have also been considered.
For this assessment, we have considered all broad-market (sole or across capitalizations) and sector/theme ETFs focused on a single country. Leveraged ETFs have also been considered. However, currency-tracking ETFs have not been counted as part of the curated list.
Thus, although funds like Global X China Industrials ETF (CHII), Direxion Daily MSCI Brazil Bull 3X Shares (BRZU), and Columbia India Infrastructure ETF (INXX) would find a place on the list, those like Market Vectors Indian Rupee/USD ETN (INR) would not.
Those countries which do not form part of the above graph only have a single ETF dedicated to them.
In the MSCI universe, 24 countries are classified as emerging markets and 33 as frontier markets of which 24 are included in the Frontier Markets Index. This makes for a universe of 57 countries.
However, there are only 85 ETFs tracking these countries. If we exclude those which track frontier markets, the number declines to 80, which means that there are only five funds dedicatedly tracking countries classified as frontier markets by MSCI.
While the conservative size of equity markets in several frontier and emerging markets does not make it viable for dedicated ETFs to be launched for them, in the next article, let’s focus on whether the funds that are available are providing broad enough exposure currently and whether investors have enough to choose from.