Emerging markets funds could see further upside after logging a stellar first quarter, according to traders betting on emerging markets' growth.
One popular emerging markets exchange-traded fund, the iShares MSCI Emerging Markets ETF (EEM), has gained 13 percent year to date and attracted $674 million in fund flows in that time per FactSet. The S&P 500 ETF (SPY) is up just over 5 percent year to date.
"I think we're going to see continued outperformance of the emerging markets," Richard Ross, head of technical analysis at Evercore ISI, commented Monday on CNBC's "Trading Nation."
"If you had [emerging markets] up 13 percent, more than twice the S&P, with crude down 10 percent, then you likely also had Mississippi State over UConn and you had South Carolina and Oregon in your Final Four; you just didn't have it," said Ross, who has apparently been up on his March Madness brackets.
Examining a chart of the EEM going back to last summer, Ross noted that shortly after the U.S. election in November the fund "fizzled out quickly, for fears of that pro-U.S. Trump trade, kind of protectionist, but it's gone completely the other way in the face of the collapse in crude oil on a year-to-date basis."
Analyzing the EEM further back, to 2012, Ross pointed out a "head and shoulders" bottoming pattern formed between 2015 and 2016. Such a technical pattern typically shows a bullish-to-bearish reversal in an asset's price movement, but gave way to new highs toward the end of 2016.
"I would stick with the emerging markets on a relative basis; not to say that I'm not buying the U.S., but I like [emerging markets] over the S&P right now," Ross said.
The iShares Core MSCI Emerging Markets ETF (IEMG), which is larger than the EEM by assets under management but charges a lower fee and includes many smaller companies, has logged over $6.6 billion in total fund flows year to date, according to FactSet. The IEMG, which has similar country exposures to the EEM, has gained 13.5 percent in that time.
The growth so far this year in the EEM, top-weighted holdings of which include Samsung, Tencent, Taiwan Semiconductors and Alibaba, could just be the beginning, said Eddy Elfenbein, editor of the Crossing Wall Street bog.
"I think there's a really good emerging markets story going on right now," Elfenbein commented Monday on CNBC's "Trading Nation."
"As well as it did in the first quarter, going back from October 2010, to today, the ETF is flat while the S&P 500 has doubled. People don't realize just how much the U.S. has done better than these other markets around the world. The valuation differential is of the highest in recent history," he said.
And when the trade "turns," as it has in Elfenbein's eyes, "it tends to last for a couple years."
"In fact, I think there's a very good chance that this is the beginning of a long-term cycle that can last three or five years or even longer. I think this is a great time to get into emerging markets," he said.
The EEM rose modestly in Tuesday trading.