Financials: Emerging Markets ETFs Killing U.S. Funds

It sure has been nice to see big U.S. bank stocks at least perform less bad in 2012 than they acted for most of last year. Heading into the start of trading today, the Financial Select Sector SPDR

was almost 5.6% year-to-date. Not bad at all and almost downright excellent considering the ETF's dour 2011 performance. If the returns offered by U.S. bank stocks and the corresponding ETFs are deemed "good" or "solid," then try emerging markets bank ETFs on for size. In 2011, the combination of emerging markets and financial services stocks was downright toxic. Thus far in 2012, that same combo has been enticing as select emerging markets bank ETFs have shattered the returns offered by U.S.-focused funds such as XLF. In the EM financial ETF arena, there are both country-specific and multi-country funds to choose from with the entire group walloping XLF to start the new year. Here are the top options to consider.

We noted early in the year BRAF

. That has certainly been the case as this still unheralded ETF was up 14% year-to-date at the start of trading on Friday. It should be noted that the iShares MSCI Brazil Index Fund

, the largest Brazil ETF, has slightly outperformed BRAF in 2012 and EWZ does offer almost 25% exposure to financial services stocks. EWZ has been the best of the Brazilian funds this year, but BRAF has been no slouch and has shown itself to be one of the better EM sectors funds this year.

There was a time to not be a fan

. Maybe that time has passed as EMFN has soared 17.4% year-to-date. Quibbles with this ETF include light volume and a high expense ratio at 0.67% (though that's not terrible with EM sector funds). On the plus side, EMFN yields almost 7.2% and offers exposure to 10 emerging markets. Just be advised China and Brazil account for 43% of the country allocation. Other countries in the fund include are South Africa, Indonesia, Thailand, India and Russia.

The EGShares Financials GEMS ETF makes for a legitimate competitor to the aforementioned iShares fund. Neither fund is going to win any volume competitions and both are heavy on China and Brazil. In the case of FGEM, we're talking 54.5% of the fund's weight. FGEM is heavier on India than EMFN and features an allocation to Malaysia, which EMFN does not. The EGShares Financials GEMS ETF has slightly outperformed its iShares rival this year, but EMFN wins the yield battle between these two funds.

The Global X China Financials ETF is indicative of how strong EM financial ETFs have been in 2012. Up 13.9% year-to-date is good enough to make CHIX the worst performer on our list thus far. Something to note: While BRAF has lagged EWZ a bit, CHIX has outperformed the iShares FTSE China 25 Index Fund

by a fair margin this year.

Ok, the WisdomTree Middle East Dividend ETF is the worst performer on this list as it's the only ETF that is down year-to-date. It's not a pure play on financials, but the sectors accounts for almost 45% of the fund's weight. The six countries in GULF's lineup (Qatar, Kuwait, United Arab Emirates, Morocco, Oman and Jordan) are have a frontier market feel to them, perhaps indicating that while investors are willing to roll the dice on emerging markets, frontier markets are still too risky. The good news is GULF yields 5.6%.