Emerging Markets A Better Way To Play Banks?

Published on Friday, 03 February 2012 21:32 Written by Todd Shriber

New York, February 3^rd (TradersHuddle.com) – Any investor not living in a cave in 2011 knows that it was a miserable year for bank stocks and ETFs and not just the U.S. ones. Europe’s sovereign debt crisis predictably plagued that regions financial services stocks and large weightings to financials hammered popular emerging markets ETFs such as the iShares MSCI Brazil Index Fund (NYSE: EWZ) and the iShares FTSE China 25 Index Fund (NYSE: FXI). In other words, financials and emerging markets were a toxic brew just a short time ago.

Well, times change and they can change fast in the financial markets. As hard as it might be for some to believe, financials have been a leadership group in 2012. The emerging markets/financials combination has been even more rewarding, a fact highlighted by a year-to-date of nearly 22% for the unheralded iShares MSCI Emerging Markets Index Fund (NASDAQ: EMFN). EMFN’s performance compares quite favorably with a 13.3% gain for the Financial Select Sector SPDR (NYSE: XLF) and a 15.7% gain for the Vanguard MSCI Emerging Markets ETF (NYSE: VWO).

Even with those convincing anecdotes, you’re not likely to hear many pundits extolling the virtues of EMFN and that has been the case ever since the ETF debuted two years ago. Banks represent 77% of EMFN’s weight with insurance firms, diversified financials and real estate firms accounting for the rest of the ETF’s weight.

EMFN offers exposure to nearly 20 countries, but China and Brazil command a dominant presence within the ETF, combining for 43% of the fund’s weight. South Africa is the only other country with a double-digit allocation. Other countries that are found in EMFN include India, Indonesia, Thailand, South Korea, the Philippines and Russia.

Among EMFN holdings that U.S. investors are probably familiar with, there are most of the big Chinese state-run banks along with Itau Unibanco (NYSE: ITUB), the ETF’s largest holding, and Banco Bradesco (NYSE: BBD).

While emerging markets ETFs have proven extremely popular with investors and its seems like financiasl are always in the spotlight, it’s almost impossible to pinpoint why EMFN has attracted more attention, positive or negative. Then again, investing isn’t a popularity contest and no one can argue with EMFN’s returns nor that fact that the ETF’s chart indicates the fund is in breakout mode. After clearing uptrend resistance earlier this month, EMFN looks poised to tack another 10% to eclipse its 52-week high even if no one is watching.

The vitals: EMFN is home to 99 stocks and an expense ratio of 0.67%. The ETF has over $3.6 million in assets under management, but its most important number might be this: 7.18. As in 7.18%. That was EMFN’s dividend yield at the close of trading on Friday February 3. Be advised EMFN has average daily volume of less than 1,000 shares, which can lead to wide bid/ask spreads.