CHICAGO, May 15, 2012 /PRNewswire/ -- Stocks and funds in this article include: SPDR S&P Emerging Market Small Cap ETF (AMEX:EWX), WisdomTree Emerging Markets SmallCap Dividend Fund (AMEX:DGS), iShares MSCI Emerging Markets Small Cap Index Fund (AMEX:EEMS), First Trust Emerging Markets Small Cap AlphaDEX Fund (AMEX:FEMS). Eric Dutram looks at four ETFs in the emerging market world that focus in on small cap securities.
Guide to Small Cap Emerging Market ETFs written by Eric Dutram of Zacks Investment Research:
As domestic markets and European economies continue to sputter, growth in equities becomes harder to come by. In light of this, a look at quickly growing emerging markets could be ideal for some investors who have a higher risk tolerance at this time.
Not only do these nations have greater growth potential, but they often have lower levels of correlation with their developed market counterparts. Additionally, banking securities tend to be more focused at home than abroad, suggesting low levels of exposure to the European debt debacle as well (see more on ETFs at the Zacks ETF Center).
Luckily for investors, the ETF industry has made it extremely easy to play this slice of the market in a number of ways. There are now literally dozens of funds with either a regional focus, or even country specific products as well, that can give investors the opportunity to target with impressive ability any market segment that they so choose.
However, many large cap emerging market ETFs have high levels of concentration in just a few sectors. For example, two of the most popular funds in this segment, the SPDR S&P BRIC 40 ETF (AMEX:BIK) and the iShares MSCI BRIC Index Fund (AMEX:BKF), both have about half of their assets in two segments; financials and energy (read Top Three BRIC ETFs).
Obviously, this might not be ideal for many as it avoids a number of potentially high growth sectors and leaves a portfolio heavily dependent on just a few slices of an economy. In order to avoid this, investors could be better off looking at small cap emerging market ETFs instead.
ETFs in this segment focus on pint sized securities across the developing world, irrespective of sector, much like their large cap counterparts. Yet, unlike their large cap brethren, small caps often have a more spread out holding profile which usually includes more assets in consumer or industrial sectors (see Three Overlooked Emerging Market ETFs).
Additionally, small caps are often capable of higher levels of growth than large caps, a situation which can be especially important in the low growth world we find ourselves in today.
Yet with that being said, investors should note that these products can experience levels of volatility that can make large caps emerging stocks seem stable in comparison. Risk tolerance should be very high for those looking to make a play on this space as huge gains and losses can come in a very short period of time.
Nevertheless, for investors who are willing to juice up risk levels in hopes of achieving higher growth rates in a section of their portfolio, any of the four small cap emerging market ETFs we have highlighted below could be an excellent choice:
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