A big selling point for investing in emerging markets is the promise of tapping into the rising middle class in these countries and reaping the benefits of outperformance through high growth.
But that hasn’t been the case—at least so far. Using the biggest broad-based emerging market exchange-traded funds as examples, the Vanguard FTSE Emerging Markets ETF (VWO) and iShares MSCI Emerging Markets ETF (EEM), long-term performance in this sector has been lagging even though year-to-date performance is strong.
VWO’s 10-year return is 2.49 percent, although it is up 11.38 percent year-to-date. It has an expense ratio of 14 basis points and has assets under management of $51.97 billion. EEM’s 10-year return is 1.63 percent, with its year-to-date return up 12 percent. Its expense ratio is 72 basis points and its AUM is $29.6 billion
By contrast, the 10-year track record for the SPDR S&P 500 ETF Trust (SPY) has been annualized gains of 7.14 percent, with a year-to-date return of 5.15 percent.
The picture doesn’t look much different when looking at consumer-focused EM ETFs. The Columbia Emerging Markets Consumer ETF (ECON), which debuted in 2010, is the largest consumer-focused ETF with AUM of $750 million. Its five-year annualized return is 1.41 percent, though it’s up 12.8 percent in 2017. It charges 85 basis points.
The WisdomTree Emerging Markets Consumer Growth Fund (EMCG), which launched in 2013, has a three-year return of minus 1.42 percent and is up 11.13 percent year-to-date. It has AUM of $24.5 million and an expense ratio of 63 basis points.
Another consumer-focused emerging market ETF, the iShares MSCI Emerging Markets Consumer Discretionary (EMDI), closed in 2015.
Country-specific emerging-market consumer funds have also performed poorly over the long haul. That includes the Global X China Consumer ETF (CHIQ), down 0.65 percent on a five-year annualized return, but up 18 percent year-to-date. The Global X Brazil Consumer ETF (BRAQ) is down 4.78 on a five-year return, and up 14 percent year-to-date.
CHIQ has garnered $76.5 million in assets with an expense ratio of 65 basis points, while BRAQ has pulled in just $5.6 million and sports an expense ratio of 77 basis points.
The only consumer-focused emerging market fund to show consistent strength is the Columbia India Consumer ETF (INCO) which is up 15.24 percent on a five-year basis and 21.15 percent year-to-date. It has $91.7 million in AUM and an expense ratio of 89 basis points.