ETF Talk: The Philippine Tiger Cub with a Roar

The Philippines is among the group of populous, newly industrialized Asian nations known as the “tiger cubs” that may follow in the path of the Asian tigers: Hong Kong, Singapore, South Korea and Taiwan. Emerging markets, such as the tiger cubs, generally have seen a pullback this year, with continued uncertainty in Europe and political instability from the United States. But the Philippines has notched four quarters of growth above 7%, starting in the third quarter of 2012, and is projected to continue that pace through the end of this year. If you are looking to tap that emerging-market firepower, check out the iShares MSCI Philippines ETF (EPHE).

EPHE is a non-diversified fund which seeks to match the price and yield performance, before fees and expenses, of an index designed to match the performance of the Philippine equity markets. The underlying index is a free float-adjusted market capitalization-weighted index.

Year to date, the fund is at a slight loss, due to retrenchment in August and September in anticipation of the Federal Reserve’s expected tapering of its easy-money policies. Last year’s gain, however, was 46%, in a year when the country’s economy grew by 6.6%. The fund also offers a yield of 1%, if you also like a bit of income that beats what banks now pay.

The top 10 holdings in EPHE’s portfolio comprise 62.88% of the fund. Holdings include Ayala Land, Inc., 9.76%; Philippine Long Distance Telephone Company, 7.52%; SM Investments Corp., 6.95%; BDO Unibank, Inc., 6.42%; and Ayala Corp., 6.37%. The primary sectors in which the fund is invested are financials, 42.89%; industrials, 19.76%; telecommunications, 10.65%; consumer staples, 10.22%; and utilities, 9.40%. Other notable areas of investment are consumer discretionary and materials.

The Philippines’ growth is anchored by strong domestic demand, giving the country’s economy a buffer from weak international markets. Further, to the extent that the nation’s exports might be hit by the Fed taper, that shock is largely priced in now, so a recovery in this fund is quite possible. If you are willing to accept the risk of investing in an Asian tiger cub, EPHE might be a good ETF to add to your personal watch list.

For those of you who want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.