Time to Worry about the Philippines ETF? - ETF News And Commentary
August 10 2012 - 6:43AM
Zacks
The rapid expansion of the ETF industry has given rise to a
number of new funds targeting once obscure markets. Now, investors
have access to countries like Vietnam, Egypt, and Peru in
Exchange-Traded form, giving investors a variety of new options
that were once reserved for institutional investors.
In continuing with this country-ETF trend, iShares launched an
ETF tracking the Philippines about two years ago, the
iShares MSCI Philippines Investable Market Index Fund
(EPHE). The fund targets a very populous country, but one
that remains an unknown to many, at least from an investment
perspective (read Five Minute Guide to Philippines ETF
Investing).
Nevertheless, the product has managed to amass a very
respectable $139 million in AUM while trading a rather robust
140,000 shares in an average session. This puts the fund into elite
company among country ETFs, especially of those tracking relatively
overlooked Asian markets.
While the AUM gains have undoubtedly been in part due to the
country’s low levels of correlation and exposure to both developed
markets and many emerging nations in the region, the solid
performance by EPHE hasn’t hurt matters either. In fact, EPHE has
been on a tear since it first debuted, adding 25.9% year-to-date,
and 17.9% since inception (see Southeast Asia ETF Investing
101).
This solid level of performance has easily trounced broad
emerging market ETFs that are tracking benchmarks like the MSCI
Emerging Markets index. EPHE has more than doubled these broad
emerging market ETFs from a year-to-date look, and by an even
greater margin since its inception, suggesting that the fund, and
the Philippines, has been the place to be in emerging market ETF
investing as of late.
However, recent weather events could signal a short-term top for
the country and EPHE, as a devastating flood has wrecked havoc on
the capital of Manila. Almost two dozen people have died while two
million have been impacted. Meanwhile, some report that close to
two weeks of rain put nearly half of the 12 million person city
underwater at the peak of the damage.
August is traditionally the wettest month of the year for the
city but as the metro area has added almost two million people
since the start of the Millennium, the floods have become even
harder to manage. Close to 300,000 are believed to still be
displaced and it could take some time before everything gets back
to normal in the region.
While the situation has been devastating for many of the city’s
millions of residents, it could be equally bad for the economy as
well. Metro Manila is the undisputed engine of growth in the
nation, accounting for 33% of the national GDP despite making up
roughly one-eighth of the population in the nation (see Three
Overlooked Emerging Market ETFs).
Partially thanks to much of Manila being underwater, as well as
a general risk-off trade in many emerging markets as of late, many
investors have begun to grow skeptical of EPHE’s short term
performance. The fund has underperformed both American and broad
emerging markets—by about 400 basis points in the first third of
August-- as the weather in the region has intensified and as more
damage estimates have been known.
Due to this, some investors may want to consider avoiding EPHE
for the time being, or at least until the country’s top economic
region gets back on track. Without their productivity and growth
engine, it is hard to imagine a scenario in which the country
outperforms its emerging market brethren, at least in the short
term (read Southeast Asia ETF Investing 101).
For these reasons, it may be best to cycle into other Southeast
Asia ETFs for those looking for emerging market exposure. While the
current flooding doesn’t look to have too big of a long term
impact, it could drag on confidence or growth levels over the next
few weeks, a situation that could potentially create an interesting
buying opportunity for those who still like EPHE and the
Philippines but are unsure of how to play the situation in light of
this unfortunate situation from Mother Nature.
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ISHARS-EMG MKT (EEM): ETF Research Reports
ISHARS-MS PH IM (EPHE): ETF Research Reports
VIPERS-M EM MKT (VWO): ETF Research Reports
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