Sept. 19 (Bloomberg) -- The iShares MSCI Emerging Markets Index exchange-traded fund fell from a four-month high, defying a rally in the benchmark for developing nations, after the gap to its net asset value swelled to the widest since 2008.
The ETF, which trades under the ticker EEM, dropped 0.5 percent to $43.04 at 4 p.m. in New York. The exchange-traded fund surged 4.2 percent yesterday to trade at the widest gap to its net asset value since November 2008. The MSCI Emerging Markets Index added 2.5 percent to 1,025.50 today, after declining 0.1 percent yesterday.
The Federal Open Market Committee yesterday refrained from reducing the $85 billion pace of its monthly securities buying, spurring a rally in global equities. Share prices for the 10 largest diversified emerging-market ETFs on average were 42.6 percent more volatile than their underlying indexes from May 22 to June 24, when comments by Federal Reserve Chairman Ben S. Bernanke triggered a selloff that sent emerging-market stocks to a one-year low, according to data compiled by Bloomberg.
“The EEM jumped like a rocket ship after the Fed yesterday,” Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said by phone. “You do get a deviation in the EEM relative to the index or those underlying simply because the EEM is trading in the U.S. while the underlying companies are closed.”
The net asset value is an exchange-traded fund’s per-share value and is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding.
Even without a massive market selloff, ETFs that track emerging stocks tend to suffer bigger price swings than their underlying indexes. In the 12 months ended June 24, the ETFs in the ranking were on average 31.6 percent more volatile than the benchmark. When prices start to fall at a rapid pace, that excess volatility tends to increase.
The Federal Open Market Committee said it wants more evidence of an economic recovery before paring its bond-buying program, surprising economists who predicted a reduction in the plan. The Fed has held the main interest rate near zero since December 2008 and pushed its balance sheet to a record $3.66 trillion through three rounds of stimulus.
More than $50 billion has left global funds investing in emerging-market bonds and stocks since May, extending the outflow this year to $11 billion, according to data from EPFR Global. The measure for stocks in developing nations has retreated as much as 16 percent since May 22, when the Fed signaled its asset-buying program could be trimmed if the U.S. economy showed sustained improvement.
“If there was one asset class that was most vulnerable to a Fed tapering it was emerging markets,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said by phone. “The lack of a taper should be a positive.”
--With assistance from Alexis Leondis in New York and Christopher Condon in Boston. Editors: Rita Nazareth, Tal Barak Harif