In 2010, some emerging markets ETFs will be better positioned than others to take advantage of global economic trends and growth.
Countries like China, Korea and India deserve a thorough look as those economies continue to develop and mature. As investors balance their portfolios for 2010, here's my three favorite emerging market ETF picks - along with one honorable mention.
Claymore/AlphaShares China Small Cap
HAO, which advanced 96.6 per cent in 2009, is still well positioned for 2010.
In an already-explosive economy like China's, the small-cap firms that underlie HAO have a distinct advantage over their state-owned peers.
While industrials and materials are still the two most heavily weighted sectors in HAO, this ETF offers significant exposure to the consumer staples and health care sectors. As China's economy matures, these areas of the marketplace will hold potential for well-positioned investors.
HAO is better positioned than many of its peers to take advantage of growth in the health care and information technology sectors that are represented by large state-owned companies in capitalization-weighted peers like the SPDR S&P China ETF and the iShares FTSE/Xinhua China 25 ETF .
Several innovative HAO holdings, like batter maker BYD Co. and Dongfeng Motor Group, experienced tremendous growth in 2009, helping to boost the fund's returns. As the Chinese government continues to promote private consumption and credit conditions improve for small businesses, HAO continues to have tremendous potential.
iShares MSCI South Korea Index ETF
When investors look to gain exposure to hot technology companies, emerging markets ETFs may not be the most obvious place to look. The iShares MSCI South Korea ETF, however, is a convenient entry-point for broad exposure to companies like Samsung and LG Electronics.
Information technology is the most heavily-weighted sector in this unique emerging market fund, which tracks 101 publicly traded securities in the South Korean market.
Samsung, a global leader in the manufacturing of consumer electronics, cell phones, memory chips, and LCD panels, accounts for more than 18 per cent of this top-heavy fund, so it is an important company for EWY investors to monitor. While Korea is considered a "developed" market by some index providers, this export-driven economy, and ETF, has stronger short-term growth prospects than other developed markets. China demand, which soaks up much of Korea's exports, should continue to benefit the components in EWY's portfolio in the months ahead.
PowerShares India ETF
Information technology and commodities firms dominate this India ETF, helping to position PIN for growing consumer demand in 2010. Holdings like Infosys Technologies and Oil & Natural Gas Corp., which helped to propel PIN more than 112 per cent during the 1-year period ending January 8, still look like promising investments in 2010.
A strengthening rupee, rising exports and increasing auto sales paint a bullish picture for India's economy, whose growth outpaced estimates in the latter part of 2009.
PIN's equity-based portfolio is a solid stepping stone for investors looking to participate in India's growth. As a recovering global economy helps to promote exports and inflation fears fuel commodity prices, the top sectors in PIN should continue to profit.
Honorable Mention: iShares MSCI Taiwan Index
Taiwan's exports surged during December, mirroring the growth of this emerging market, and reflecting improvements in the broader global economy.
Prospective EWT investors should view this fund as a technology play, as tech firms make up more than 60 per cent of this ETF. Top holding Taiwan Semiconductor makes up 13.3 per cent of this cap-weighted fund.
Promising free trade deals make EWT a fund-to-watch in 2009, and the superior operating leverage of Taiwanese tech firms will help to spur this ETF as demand for consumer electronics continues to recover.