Emerging Markets -- Three ETFs with Mixed Results
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The search for greater yields in investments has taken a lot of investors into uncharted territory. Emerging markets is one of these areas were caution should be double when evaluating investments. Packaged products such as mutual funds and ETFs are certainly not excluded from such increased due diligence.
In general terms, emerging markets refers to underdeveloped and undeveloped countries. As a basic rule of thumb, the closer an economic zone is to the developed world, some risk mitigation may have taken place as this area starts to get in sync with the developed world. Here are three ETFs that can show some of the additional risks and rewards in such investments.
The iShares MSCI Emerging Markets Eastern Europe Index Fund (NYSEMKT: ESR) is an ETF that tracks the MSCI Emerging Markets Eastern Europe Index. Visit http://www.bloomberg.com/quote/ESR:US for the latest updates. ESR started on Sept. 30, 2009, and has demonstrated a volatile returns history. The track record is too short to assess how ESR may behave in future market conditions. The portfolio holds 55 stocks. Another concern is that the top two positions hold approximately 29% of the fund. Gazprom OAO (NASDAQOTH: OGZPY.PK) has 18.54% and Lukoil OAO (NASDAQOTH: LUKOY.PK) holds 10.48% as of Sept. 7.
ESR does hold the promise of long-term returns that may not be found elsewhere as this part of the developing world has made progress. The risk and volatility of holding ESR make this an investment only to those that understand and accept such risk and can afford the potential loss of capital. Details on ESR can be found on this link http://us.ishares.com/product_info/fund/overview/ESR.htm
The Market Vectors Egypt Index ETF (NYSEMKT: EGPT) tracks the Market Vectors Egypt Index. This is a pure play on Egypt. EGPT was brought to the market in Feb. 16, 2010. Visit http://www.bloomberg.com/quote/EGPT:US for the latest data. Accurate reports on the stocks that are held by EGPT are difficult to obtain due to the location of the issuing corporations and where the stock is traded. This places reliance on EGPT to release accurate values. The top holdings are in construction, banking and finance, and telecommunications. These are core industries that facilitate development and growth of the economy. This is a high risk, high reward opportunity, to be acquired only with risk capital. Additional details can be found on this page, with a link to the sponsor of EGPT http://www.vaneck.com/funds/EGPT.aspx
The PowerShares MENA Frontier Countries Portfolio (NYSEMKT: PMNA) is an ETF designed to track the NASDAQ OMX Middle East North Africa Index. Countries that comprise this index include Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and United Arab Emirates. PMNA was started on July 7, 2008 and has delivered consistently poor results. Returns histories and other facts can be found on http://www.bloomberg.com/quote/PMNA:US PMNA does not make an attractive investment opportunity at the present. To those seeking the likelihood of returns from investing in emerging markets, this is one ETF to be avoided. Sponsor prepared information on MENA can be found on http://www.invescopowershares.com/products/overview.aspx?ticker=PMNA
Emerging markets can and sometimes do offer enormous returns. The “bang for the buck” can be nice if and when it is attained. As with any investment that offers the possibility of above average returns comes risk. Extensive due diligence into the geographical area any one of these strategies invests is prudent. It is possible that accessing information may be restricted and if this is the case, avoidance of this potential investment may be the best step.
Jeffrey L. (Jeff) Stouffer is an Investment Advisor Representative and manages the Alexandria VA office of Kingsview Asset Management. As a practicing financial advisor serving the needs of individuals and small businesses, he believes in using a wide range of investment strategies, including alternative investments. All strategies are client centric and unique. He can be reached at jeff.stouffer@kingsviewassetmanagement.com. He has no positions in the stocks mentioned above.
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