South Korea ETF: The Anti-Apple Trade?

By Traders Huddle | March 16, 2012 AAA

By: Todd Shriber
New York, March 15th (TradersHuddle.com) - If there's one thing can be universally regarding all emerging markets and the ETFs that track it, is that this group is high beta. Higher beta than the U.S, Canada and most of Western Europe, that's for sure, but with the added risk usually comes added rewards. If nothing else, most emerging markets can deliver on the promise of more robust economic growth than what can be found in the developed world.

The good news is that investors looking for emerging markets exposure have more conservative options, primarily in the form of South Korea and Taiwan. Both will almost certainly be the next two emerging markets to be promoted to developed markets status, but in the meantime, the iShares MSCI South Korea Index Fund (NYSE: EWY) stands as a fine way for risk-averse investors to tap into the emerging markets growth theme.

The iShares MSCI South Korea Index Fund has been around since 2000, and in that time, the fund has attracted almost $3.5 billion in assets under management. That makes EWY the fifth-largest country-specific ETF on the market today only trailing the iShares funds that track Brazil, China, Japan and Canada.

Playing South Korea in general, and specifically EWY, is not like playing an emerging market such as Brazil or Colombia. South Korea is a highly developed economy, and while export-driven, those exports are not mainly comprised of raw materials. In fact, when it comes to technology, South Korea is every bit as tech-savvy as say the U.S. or Japan, maybe more so. Along those lines, it's not surprising that the tech sector represents almost 32% of EWY's weight and that Samsung alone accounts for 21.5% of the fund's weight.

Consumer discretionary, industrials, financials, and materials also receive double-digit allocations inthe EWY, so it's fair to say that despite the excessive weight to tech names, the EWY is somewhat diverse at the sector, and representative of South Korea's advanced economy.

Resurgent tech stocks have helped EWY to a gain of almost 12% year-to-date, but being conservative has its drawbacks. EWY has been outperformed by the equivalent ETFs tracking other countries in its region. The relevant funds tracking Taiwan, Thailand, the Philippines and Vietnam have all sharply outperformed EWY year-to-date. To its credit, EWY has been a better bet than the Market Vectors Indonesia ETF (NYSE: IDX).

The upside to EWY is that it is currently knocking up against some technical resistance just below $61 and should the ETF breakthrough that area on strong volume that could portend a run back to $65, if not higher. Something else to consider: Some analysts view Samsung as one of just a few, or perhaps the only company that can really compete with Apple (NASDAQ: AAPL) in the smartphone and tablet wars. So, if you're looking for an anti-Apple trade, EWY has merit.

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