Access The $30 Trillion Consumer Market With These ETFs (ECON, EMDI, EMDD)
Neena Mishra: Emerging markets currently represent about 70% of the world’s population, but only about 36% of the global GDP. However these economies are growing much faster than the developed economies.
By 2020, the combined GDP of emerging economies is projected to overtake that of the developed economies. As these countries grow, more people see rise in disposable incomes and spending capacities.
According to a McKinsey report–by 2025, the consumption class in the emerging markets will grow to 4.2 billion people and the consumption will reach $30 trillion–about half of the global total. As a result, the emerging markets consumers will become dominant players on the global economic scene.
The emerging markets consumer market also looks very attractive due to positive demographic trends in these countries. The median age in the emerging countries is much lower compared with most developed countries and with growing incomes, many people join the ranks of middle class every day. (Read: Spending is Surging: Stock Up on These ETFs)
Rapidly growing middle class in emerging markets will ensure the growth of consumer focused companies in these regions. Further many of the governments are also taking policy measures to encourage domestic growth while seeking to reduce the dependence on exports.
The Investors can access these markets through a number of ETFs, both multi-country and country-specific ones. The broad based emerging market funds are typically dominated by large cap multinational companies. On the other hand, there are some emerging markets consumer ETFs designed specifically to benefit from the rapid growth of the smaller, domestically focused companies.
In this article we present the ETFs that provide broader exposure to emerging markets consumers. (Read: Buy These Emerging Asia ETFs to Beat China, India)
EGShares Emerging Markets Consumer ETF (NYSEARCA:ECON)
ECON tracks the Dow Jones Emerging Markets Consumer Titans 30 Index, which measures the performance of 30 leading emerging market companies in the Consumer Goods and Consumer Services industries.
The fund made its debut in September 2010 and currently holds $468.4 million in AUM, invested in 30 securities. It charges 85 basis points for annual expenses.
Top country weighting are South Africa (19%), Mexico (18%), Brazil (17%) and India (11%). Beverages (16%), Food & Drug Retailers (14%) and Food Producers (13%) occupy the top three spots in terms of sector exposure.
Emerging markets consumers do prefer their familiar local and regional brands in comparison to developed world brands. The companies that this ETF invests in derive most of their revenues from the emerging markets sales.
MSCI Emerging Markets Consumer Discretionary Sector ETF (NASDAQ:EMDI)
EMDI tracks the MSCI Emerging Markets Consumer Discretionary Index. Incorporated in February 2012, this ETF now has $2.5 million in assets, invested in 81 holdings.
The fund invests mostly in Consumer Discretionary stocks, which currently comprise 99.8% of the fund. It is heavily tilted towards South Korea (32%), while South Africa (18%), China (10%) round out the top three. EMDI charges 69 basis points in expenses per year.
EGShares Emerging Markets Domestic Demand ETF (NYSEARCA:EMDD)
EMDD, the latest product in this space, tracks the price and yield performance of the INDXX Emerging Markets Domestic Demand Index. The index is comprised of companies that are expected to benefit most from the organic growth within emerging economies.
Financials (25%), Technology (14%) and Energy (13%) are the top sectors while Mexico (25%), China (15%) and India (14%) occupy the top spots in terms of country exposure. The fund charges 85 basis points in expenses per year.
In 1978, Len Zacks discovered the power of earnings estimates revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank, a peerless stock rating system whose Strong Buy recommendation has an average return of 26% per year.