Reversal of fortune for emerging market ETFs as investors rush in
By Ashley Lau
NEW YORK May 21 (Reuters) - U.S. investors who fled emerging market equities at the beginning of the year are coming back with a vengeance.
So far in the second quarter, they have poured $5.3 billion into related exchange-traded funds, citing growth prospects and attractive valuations for a group they had been selling broadly since September. That is more than double the total net investments in emerging market equity ETFs for all of 2014, according to FactSet data.
In the first quarter, investors pulled $1 billion out of the group.
As U.S. stocks hit new highs, shares of companies in emerging markets look cheaper than U.S. stocks, said Heidi Richardson, BlackRock's global investment strategist.
"Valuations are looking much more attractive," Richardson said, noting the discount on price-to-earnings for emerging markets relative to the U.S. and developed markets.
The SPDR S&P 500 ETF, for example, has a current price-to-earnings ratio of 20.28, while the Vanguard FTSE Emerging Markets ETF and iShares Emerging Markets ETF have price-to-earnings ratios of 13.02 and 13.05, respectively.
Emerging market equity ETFs on average have returned 11.4 percent to investors so far this year, after losing 1.3 percent in 2014, according to FactSet data.
Emerging markets had fallen out of favor heading into 2015, as investors acted on concerns that the whole group could be hurt by a strengthening dollar, falling commodity prices and expected Federal Reserve interest rate hikes. Countries such as Brazil and Turkey, which have a big portion of their debt denominated in dollars, are hurt as a stronger dollar makes it more expensive to repay their debt. Continuación...