The Best Of Both Worlds With The TICK

By Aaron Levitt | July 05, 2011 AAA

For investors, emerging markets represent the next stages of global growth. The World Bank estimates emerging markets will expand by 5.9% in 2011 and 6.1% in 2012. That's more than double their developed market twins. Funds like the SPDR S&P BRIC 40 (NYSE:BIK) have become popular ways to target exposure to the developing world. However, not all emerging markets are alike. Fast-growing nations such as China and Brazil have struggled in recent months to contain inflation and control heavy inflows of investment money. For portfolios, finding a balance between fast growth and developed stability is paramount. One group of nations could be just what a portfolio needs.
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The "Midcaps" of the Emerging World
Many analysts have highlighted midcap stocks' potential. Faster growing than large caps, but safer and more stable than small cap, midcaps represent a great growth opportunity. For emerging market investors, finding those nations that straddle the line between developed and developing markets could be the best way to play the EM space. The "TICK" bloc of Taiwan, Israel, Chile, and Korea represent such an opportunity. Overall, these four nations have substantially higher GDPs per capita than the more famous BRIC nations and feature lower unemployment rates. In addition, the TICK represents a bloc of pure democratic nations, with ties to the U.S. and Europe. This translates into reduced political and business risk relative to many other emerging markets. (Emerging markets provide new investment opportunities, but there are risks. For more, see What Is An Emerging Market Economy?)

Adding the TICK
Each of the four TICK nations has variety of individual pluses and minuses. Unfortunately, the bloc is generally underweighted in the most common ways to access emerging markets and there isn't a single TICK ETF as of yet. However, each of these nations is available individually and can be combined to make a TICK portfolio weighting.

Taiwan
Taiwan's GDP grew at an astonishing 10.47% rate in 2010. This was the largest increase in GDP over the last 23 years. This breakneck growth was courtesy of the nation's relationship with China. Taiwan supplies an abundant amount of technology components for Chinese factories to assemble and export. The island's exports surged to $275 billion last year, with exports to China accounting for more than 42% of that total. The nation continues to be a leader within the semiconductor and smart phone sectors and has recently added biotechnology supplier to its mix. Investors can add Taiwan via the iShares MSCI Taiwan Index (NYSE:EWT) or via the small cap focused IQ Taiwan Small Cap ETF (Nasdaq:TWON). (ETFs are a viable alternative to mutual funds, but before you invest, there are a few things you should know. For more, see Using ETFs To Build A Cost-Effective Portfolio.)

Israel
Israel continues to be known for its high tech economy. However, recent innovations in hydraulic fracturing could make the tiny Middle Eastern nation an oil and gas powerhouse. New deep water offshore fields could also help fuel Israel's energy renaissance. Even if the oil claims don't pan out, Israel still has the highest rate of start-up companies in the world and leads in patent registrations per capita. Israel's political ties with the United States have resulted in a plethora of the nation's companies trading on U.S. exchanges such as Teva Pharmaceutical (Nasdaq:TEVA) and Ceragon Networks (Nasdaq:CRNT). The iShares MSCI Israel (NYSE:EIS) can be used as an overarching play.

Chile
Chile's economy could almost be seen as a proxy for the copper market. However, despite this dependency on exports, Chile uses conservative account management and banks extra copper revenues during good times and saves them for when prices fall. The nation is also major producer of gold, timber and various agricultural crops, and is home to one of the best telecommunication networks in all of Latin America. Chile can be accessed via the iShares MSCI Chile (NYSE:ECH).

Korea
Switching gears from a pure manufacturing economy to one based on high technology, South Korea has managed to stay competitive on a global landscape. Featuring some of the fastest broadband speeds and a new smart grid/energy efficiency mandate, the country is continuing its push into the 21st century. Both the iShares MSCI South Korea Index (NYSE:EWY) and IQ South Korea Small Cap ETF (Nasdaq:SKOR) provide access to the dynamic nation.

Bottom Line
Long term potential for the emerging market nations is great. However, with some analysts worried about inflation hindering the story, finding a balance of growth and safety is paramount. The TICK bloc of Taiwan, Israel, Chile and South Korea offer a blend of both developed and emerging market characteristics that makes them a perfect way to play any sort of emerging market slowdown. (For related reading, see Investing In Emerging Market Debt.)

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