Emerging-market stocks with links to the middle class are the best bets to profit on expansion in those economies, said Bob Holderith, who oversees the U.S.’ fastest growing developing-nation exchange traded fund.
“The amount of the discretionary spending is going to double and triple,” Holderith, president and founder of Emerging Global Advisors in New York, said in an interview at Bloomberg’s headquarters yesterday. “It’s tough to find another story like that in the emerging markets.”
Total assets of EGShares Emerging Markets Consumer Titans Index Fund (ECON), which tracks the stocks of food, car and media companies in developing countries, have soared 1,136 percent to $329 million since its inception in September 2010, data compiled by Bloomberg show. That’s the biggest increase among emerging-market ETFs domiciled in the U.S. with assets of at least $100 million.
Spending by middle-class consumers in countries such as China and Brazil will probably swell from $6.9 trillion to more than $20 trillion by 2022, equivalent to the size of the economies of the U.S., U.K. and Japan combined, according to a study by McKinsey & Co. in April 2011. The Dow Jones Emerging Markets Consumer Titan 30 Index, the benchmark stock measure that EGShare’s ETF tracks, has gained 188 percent in the past three years, more than double the return of the Standard & Poor’s 500 Index.
“The mood in most of the emerging markets is good,” Holderith said. “The growth of the emerging-market consumer is going to be similar but at a multiple larger in size to the growth of the U.S. consumer and the Japanese consumer.”
EGShare’s consumer ETF has earned 20 percent since its inception. The Vanguard MSCI Emerging Market ETF (VWO), the largest developing-economy exchange-traded fund with total assets of $50 billion, returned 0.5 percent during the same period.
The consumer fund’s largest holdings include the American Depositary Receipts of Cia de Bebidas das Americas, Latin America’s largest brewer known as AmBev, Naspers Ltd. (NPN), Africa’s largest media company, and Chinese carmaker Donfeng Motor Group Co.
The ADRs of Sao Paulo-based AMBev have increased 111 percent in the past two years.
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