Transcript Motley Fool Asset Management

The Hidden Dangers of
ETFs
November 10, 2012
- Not For Duplication Or Redistribution -
Reason #1 to Own Emerging Markets
Market
2011 GDP
Growth
GDP/Capita
Public
Debt/GDP
2012 GDP
Growth (Est.)
2013 GDP
Growth (Est.)
USA
1.7%
$48,427
69.4%
3.3%
3.8%
EU
1.6%
$34,488
93.0%
-3.0%
3.1%
China
9.2%
$5,430
43.5%
9.6%
10.0%
India
7.2%
$1,350
51.6%
5.9%
11.1%
Brazil
2.7%
$12,674
54.4%
-2.0%
3.3%
Mexico
4.0%
$14,987
37.5%
4.3%
6.7%
Indonesia
6.5%
$3,490
24.5%
9.8%
14.2%
Source: CIA World Factbook and IMF.
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Reason #2 to Own Emerging Markets
Market
October 2009
P/E
October 2010
P/E
Recent P/E
USA
18.0
17.5
16.5
China
40.7
32.1
14.7
Source: Motley Fool research.
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Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
Reason #3 to Own Emerging Markets
Strength of USD
5.00%
0.00%
-5.00%
-10.00%
-15.00%
Strength of USD
-20.00%
-25.00%
-30.00%
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Developed Markets
Oct-12
May-12
Dec-11
Jul-11
Feb-11
Sep-10
Apr-10
Nov-09
Jun-09
Jan-09
Aug-08
Mar-08
Oct-07
May-07
Dec-06
Jul-06
Feb-06
Sep-05
Apr-05
Nov-04
Jun-04
Jan-04
Aug-03
Mar-03
Oct-02
May-02
Dec-01
Jul-01
Feb-01
Sep-00
Reason #4 to Own Emerging Markets
Returns since 2000
400.0%
350.0%
300.0%
250.0%
200.0%
150.0%
100.0%
50.0%
0.0%
-50.0%
-100.0%
Emerging Markets
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Emerging Markets Composite
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
The Problem with Emerging Market ETFs
Category v. ETF Representation
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
EEM
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The Problem with Emerging Market ETFs
The iShares MSCI Emerging Markets Fund has 2 flaws:
It’s
BIG*
and it’s
DUMB**
*37 billion of AUM as of 9/28/12
**It’s market-cap weighted, it thinks Korea is an
emerging market, it considers businesses based on
where they are HQ’d not on where they do business, etc.
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Variant Views on Emerging Markets Exposure
EEM Top 5 Markets (9/28/12)
China (16.7%)
South Korea (15.5%)
Brazil (12.6%)
Taiwan (11.1%)
South Africa (7.9%)
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Variant Views on Emerging Markets Exposure
EEM Top 5 Industries (9/28/12)
Financials (24.3%)
InfoTech (13.9%)
Energy (13.1%)
Materials (11.8%)
Consumer Staples (8.6%)
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Variant Views on Emerging Markets Exposure
EEM Top 10 Stocks (9/28/12)
Samsung Electronics (Korea/InfoTech)
Taiwan Semiconductor (Taiwan/InfoTech)
China Mobile (China/Telecom)
Gazprom (Russia/Energy)
America Movil (Mexico/Telecom)
China Construction Bank (China/Financials)
Petrobras (Brazil/Energy)
ICBC (China/Financials)
CNOOC (China/Financials)
Hyundai Motor (Korea/Industrials)
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