Tim Hanson has a stark warning for ETF investors, one that flies in the face of conventional wisdom; emerging market ETFs are “a pretty package with some very scary contents.” Hanson, senior portfolio analyst with Motley Fool Asset Management, has a new report out with a very direct title, “Ditch These ETFs Now.”
“The genesis of the report was that Fool members and investors were coming to us and saying, ‘we want exposure to emerging markets,’” Hanson tells AdvisorOne. “The knee-jerk reaction is to use an ETF, but before we make that type of a recommendation, we take a hard look at the space. What we found was a significant disconnect between what people thought they were getting versus what they actually got.”
For instance, some investors asked about the iShares/FTSE Xinhua 25 Index ETF (NYSE: FXI), the most popular ETF currently available. What they didn’t realize is that is has a 40% to 50% exposure to Chinese banks.
“They were shocked when we told them, to say the least,” Hanson says.
In addition to the iShares/FTSE Xinhua 25 Index ETF, Hanson names two other ETFs to “ditch now.”
iShares MSCI Brazil (NYSE: EWZ)
According to Hanson, while this ETF will get investors access to Brazil abundance of commodities, it virtually ignores the Brazilian consumer as well as the Brazilian mobile phone and Internet user.