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One of the largest fund managers in the world, Columbia Threadneedle has over $725 billion in assets under management. It looks after investments for individual investors as well as financial advisors and wealth managers. With over 650 investment professionals located all around the world, clients have access to a wide array of investment strategies that help them achieve financial goals consistently.
One of its most popular exchange traded funds is the Columbia Emerging Markets Consumer ETF (NYSE: ECON) which has gained 25% in the last 10 years, significantly lower compared to the S&P 500 ETF which has surged over 400% since December 2011.
However, past returns should not matter much to investors and we need to analyze if the ECON ETF can continue to outpace the S&P 500 going forward.
An overview of the ECON ETF
The Columbia Emerging Markets Consumer ETF targets growth and diversification as it aims to benefit from opportunities in the consumer growth sectors of multiple emerging markets that include India and China.
The middle-class populace in most emerging markets account for a significant portion of the entire population. The purchasing power of this demographic is expected to move higher over time which will be a key driver of consumer demand and rising GDP rates.
The ECON ETF provides investors access to several consumer discretionary, consumer staples, and communication services companies. The Consumer Discretionary sector accounts for 36.86% of the ETF, followed by communication services at 36.68% and consumer staples at 26.46%.
In terms of countries, China accounts for 47.3% of the fund, followed by India, Taiwan, Russia, and Brazil at 14.43%, 13.13%, 4.71% and 4.23% respectively.
In the last 10-years, the ECON ETF has returned just below 2% to investors on an annual basis. However, in the last five years, annual returns rise to 2.93% and in the last three years it rises to over 6%. Its less than impressive returns were due to a 7.6% decline in the last 12-months.
Top holdings of the ECON ETF
The top five holdings of the ECON ETF include:
Chunghwa Telecom (4.66%)
Valued at a market cap of $32 billion, Chunghwa Telecom (NYSE: CHT) provides telecom services in Taiwan. It operates through domestic fixed communications business, mobile communications business, internet business, international fixed communications business, and Others segments.
Hindustan Unilever (4.64%)
One of the largest companies in India, Hindustan Unilever has almost tripled in market cap in the last five years. It also pays investors a tasty forward yield of 2%. A consumer-goods entity, Hindustan Unilever manufactures and sells home and personal care as well as food and refreshment products in India and other international markets.
Tencent Holdings (4.43%)
Valued at a market cap of more than $500 billion, Tencent Holdings (OTC: TCEHY) is a China-based tech heavyweight. It operates via multiple business segments including value-added services, online advertising, fintech, and business services.
Alibaba Group Holdings (4.42%)
Another well-known tech giant, Alibaba (NYSE: BABA) is one of the largest e-commerce companies in the world, valued at a market cap of $318 billion. Analysts tracking BABA stock expect sales to rise from $111 billion in fiscal 2021 to $161 billion in fiscal 2023 which ended in September.
Meituan (4.3%)
An investment holding company, Meituan provides an e-commerce platform that leverages technology to connect merchants with consumers. Its business segments include Food Delivery, Hotel & Travel, and Others.
The verdict
Investing in emerging market ETFs carries significant risks given the lack of transparency associated with a few of these markets, especially China. Further, in case the U.S. dollar appreciates significantly against other emerging market currencies, total returns will be lower.