A Decent Year For The Philippines ETF

The iShares MSCI Philippines ETF EPHE is higher by 11 percent year-to-date. While that lags the 18 percent returned by the MSCI Emerging Markets Index, EPHE's 2017 showing is still solid when considering the controversy Philippine equities have had to contend with.

For political buffs that think President Donald Trump is controversial, his administration is docile compared to Philippine President Rodrigo Duterte. Said another way, political volatility could easily be one reason why EPHE is trailing broader emerging markets benchmarks this year.

“Short term headlines concerning the Philippines have been marred with incursions between ISIS- affiliated terror groups and Filipino military forces, as the terror group is attempting to gain a foothold over the country, causing carnage in many villages and cities particularly in Marawi on the island of Mindanao,” said Street One Financial Vice President Paul Weisbruch in a note Wednesday. 

Not Always Volatile

The $189.2 million EPHE is nearly seven years old, giving a decent track record to analyze. In its time on the market, the Philippines ETF has been significantly less volatile than an array of single-country ETFs tracking larger emerging markets.

EPHE's three-year standard deviation of 15.1 percent is about 100 basis points below what is found on the MSCI Emerging Market Index. Year-to-date, however, EPHE has been 240 basis points more volatile than the emerging markets benchmark.

Additionally, Philippine stocks are expensive compared to other Southeast Asian markets and richly valued against the MSCI Emerging Markets Index. From 2011 through 2016, EPHE outperformed the emerging markets benchmark in four of six years.

Other Issues

“A recent article from Bloomberg titled 'Hopes High, Returns Low In Philippine Stocks Under Duterte' underscores some of what we are speaking of here and cites 'Philippine equities gained 0.2 percent since Duterte assumed office,'” notes Weisbruch. “The article also points out that the Philippine peso is literally the worst performing Emerging Market Asia currency since Duterte began his reign (which began nearly one year ago on June 30, 2016, with the peso having depreciated over 6 percent versus the U.S. Dollar).”

EPHE holds 44 stocks with about 70 percent hailing from the industrial, real estate and financial services sectors. Telecom is the fourth-largest sector weight at 7 percent.