I’m a fan of international country investing to diversify against not just the U.S., but in general large-cap tech exposure. One fund that, I think, is worth looking at in this category is the iShares MSCI Malaysia ETF (NYSEARCA:EWM) which offers a good way for investors to get into Malaysia’s stock markets. Malaysia has a key geographic location that gives it easy access to Southeast Asian markets. The country is rich in natural resources. Its workforce typically speaks English well and is well-trained. Malaysia also has strong systems in place for important industries such as medical devices, semiconductors, and solar panels. EWM is the only ETF in the U.S. that tracks Malaysian stocks, giving investors a chance to tap into a growing economy with lots of potential.
EWM aims to track the MSCI Malaysia Index’s performance. This index is a free float-adjusted market cap-weighted index that includes large- and mid-cap companies based in Malaysia. The fund’s goal is to give investors an affordable way to copy the returns of this benchmark, thus tapping into the possible gains of Malaysian markets.
A Look At The Holdings
EWM’s portfolio has 32 holdings. The top 10 holdings, which together account for a little over 60% of the ETF’s investments, clearly have a high degree of concentration risk, but this isn’t terribly unexpected given that this is a single country fund.
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What do these companies do? Public Bank is a Malaysian banking group that stands out in retail banking and financing services. Its strong position in Malaysia’s financial scene highlights how important this sector is to the country’s economy. Malayan Banking does plenty of things: regular banking, investment banking, and Islamic banking. CIMB Group plays a big role in Malaysian banking. It offers consumer banking, investment banking, and Islamic banking services. Tenaga Nasional stands as Malaysia’s biggest electric utility company. Its presence in the fund points to EWM’s stake in the country’s key infrastructure and energy sectors. And Press Metal Aluminium Holdings leads in integrated aluminum production.
Sector Composition and Weightings
The financial sector is the biggest part of EWM’s holdings at nearly 40%, but the fund also lets you invest in other essential parts of Malaysia’s economy.
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Utilities makeup 14.99% of the portfolio, Consumer Staples account for 10.88%, Industrials take up 8.27%, and Materials comprise 7.99%. This mix of different sectors gives investors a good overview of Malaysia’s economic scene.
Peer Comparison
In the world of single-country emerging market ETFs, EWM has no direct rivals offering focused exposure to Malaysian stocks. Yet, investors might look at wider regional ETFs, like the iShares MSCI Pacific ex Japan ETF (EPP). When we look at the price ratio of EWM to EPP, we find that EWM has underperformed since late 2019, but recent relative performance looks encouraging and could pick up.
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Pros and Cons
On the plus side, Malaysia’s position as an up-and-coming market with a fast-growing middle-class and good population trends could drive steady economic growth and boost company profits. The country’s key spot in the middle of Southeast Asia, along with its mixed economy covering areas like manufacturing, finance, and energy, makes it even more attractive to investors.
Still, investors need to think about the dangers of putting money into a single-country ETF. Political unrest, changes in currency values, and unclear rules can lead to ups and downs and affect how much money you make. Furthermore, Malaysia’s economy depends a lot on global trade and selling raw materials, which makes it sensitive to changes in what other countries want and how much they’ll pay. Keep in mind also the high concentration here, not just in the top holdings, but in the Financial sector more broadly.
Conclusion
Overall, I like the story and fund here. It provides good diversification as an emerging market investment, has an entirely unique sector mix than what you see in the U.S., and provides access to a part of the world, which is growing and has solid demographics. If you’re a fan of international diversification, I think it makes sense to consider the EWM ETF as part of your overall strategy.
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