In 2011, many CFPs and RIAs predicted a big year for emerging market ETFs, and as such, professionals helped their clients position themselves with a few ETFs that ended up not performing according to their short-term expectations. However, new reports indicate that during the month of January, some of the more popular ETFs that track emerging markets have shown strong potential, which in turn has lead analysts to speculate that these gains could continue.
For example, a February 1 article by Reuters indicated that Vanguard MSCI Emerning Markets (VWO), the largest stock index ETF of its kind measured by assets, rose by nearly 12 percent during the first four weeks of the year. As a result, many experts are hedging their bets on these stocks for yet another year.
"After burning investors last year, we expect [Brazil, Russia, India and China] to be among the top-performing markets in 2012," Anthony Welch, an analyst for Ned Davis Research, told Reuters. "We think this is a good time to add to exposure to those markets."
However, due to the nature of emerging market ETFs, CFPs and RIAs may want to carefully review the individual firms in an ETF before making their selection. For instance, many of the firms in the holdings of these ETFs may in fact be larger exporters such as Samsung Electronics that also carry exposure to the slow growth of the developed world.
Michael Krause, the chief analyst of ETF Research Center, an online database that helps CFPs and RIAs examine the most up-to-date valuations of ETFs, said that while most experts equate the performance of these ETFs with economic growth in the countires they represent, fundamentals and valuations should be the factors most closely considered since firms which dominate emerging markets funds are in reality global competitors.
While they've risen in price since the financial crisis, ETFs such as VWO may still be an attractive value when compared to other safer ETFs that don't offer the same growth prospects.
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