Asia-focused ETFs seen to shine in 2013

MANILA, Philippines - The Year of the Water Snake will be a very strong year for Asia, and making investments in the region or tapping investment instruments focused on Asia, would be a wise decision.

According to Seeking Alpha, Europe will remain in the doldrums and the US will likely grow less than two percent.

Japan, like Europe and the US, has high levels of debt and social spending that stifle growth.

“The Economist lists 2013’s 10 fastest growing economies are located in Asia or Africa,” it added.

 And among the best performing, or expected to shine investment instruments this year are exchange-traded funds (ETFs) focused on Asia.

ETFs are broadly advantageous as they eliminate corporate risk when picking individual companies.

This is especially true for investors who invest overseas where transparency may be poor. Unlike individual stocks, ETFs are transparent, diversified, cost efficient and liquid.

It is estimated that total ETF assets are worth over $1 trillion. Among the eight largest ETFs, two are focused on emerging markets and the Asia Pacific region.

The eight largest ETFs are: SPDR S&P 500 ETF Trust (SPY), SPDR Gold Shares (GLD), Vanguard FTSE Emerging Markets ETF (VWO); iShares MSCI Emerging Markets Index Fund (EEM); iShares MSCI EAFE Index Fund (EFA); Powershares QQQ Trust (QQQ); iShares Core S&P 500 ETF (IVV); and, iShares iBoxx Investment Grade Corporate Bond Fund (LQD).

“Asia’s future, however, looks bright. Investors would do well to allocate a portion of their investments to the area. By using ETFs you participate with a degree of safety not found in individual stocks,” Seeking Alpha said.

Meanwhile, the promising Asian ETFs are: iShares FTSE China 25 Index Fund (FXI); iShares MSCI South Korea Index Fund (EWY); iShares MSCI Hong Kong Index (EWH); and Market Vectors Indonesia Index ETF (IDX).

iShares FTSE China 25 Index Fund (FXI) holds 25 large-cap, mostly state owned, Chinese companies. It forecasts for over eight percent plus growth in China are correct these companies will do well.

FXI sectors include: financial services (57 percent), communication services (18 percent), energy (15 percent), and basic materials (10 percent).

The iShares MSCI South Korea Index Fund (EWY) has among the largest holding in Samsung Electronics (23 percent).

Samsung is the world’s premier electronics company. Consumers worldwide snap up Samsung’s smart phones, TVs, cameras, and other electronic paraphernalia.

The easiest way to own part of Samsung is through EWY. EWY’s major holdings include technology (36 percent), consumer cyclical (15 percent), industrials (14 percent), and financial services (13 percent).

iShares MSCI Hong Kong Index (EWH) is weighed heavily toward real estate (33 percent – primarily in Hong Kong).

Other holdings are financial services (26 percent), utilities (12 percent) and industrials (11 percent).

Market Vectors Indonesia Index ETF (IDX) is the most promising. With over 240 million people, Indonesia supplies an abundance of natural resources and consumer demand to the region.

Major sectors are financial services (25 percent), basic materials (21 percent), and consumer defensive (16 percent).

After stagnating in 2012, IDX recently broke above its 200 day moving average – a bullish sign.

Other ETFs are focused on: Taiwan (ETW), Malaysia (EWM), Singapore (EWS), Thailand (THD), Vietnam (VNM), and The Philippines (EPHE).

Since Thailand and the Philippines were the stars of 2012, it would not be surprising if they may lag behind in 2013.

 The iShares MSCI Philippines Investable Market Index Fund (EPHE) was one of the best last year among all emerging markets funds, with a gain of almost 44 percent.  

The iShares MSCI Thailand Investable Market Index Fund (THD) grew 33.5 percent.

Meanwhile, First Metro Investment Corp. (FMIC) will launch the country’s first ETF at the Philippine Stock Exchange (PSE).

It will provide a seed capital of P250 million and it will tap the services of subsidiary First Metro Asset Management Inc. (FAMI) as fund manager.

FMIC is a subsidiary of the Metropolitan Bank & Trust Co. (Metrobank), the second largest bank in the Philippines.

BDO Unibank Inc. (BDO) and the Bank of the Philippine Islands (BPI), the first and third largest bank, respectively, are also interested in launching their own ETFs.           

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