One new way to take advantage of a breakout in emerging markets

Emerging markets are on fire.

Over the past three months, the EEM emerging markets ETF has rallied 4 percent and shrugged off the extreme volatility and sell-offs that plagued U.S. markets through the end of last year.

The EEM, the best-known emerging markets exchange-traded fund, might not be the optimal way to play the space, though.

“The EEM is the biggest, that and the VWO, but that’s arguably 65 percent, almost 70 percent, Asia or implicit Asia. The top five stocks in there are mega-cap Chinese or South Korean names,” Tim Seymour, chief investment officer at Seymour Asset Management, told CNBC’s “ETF Edge” on Wednesday.

Hong Kong, Taiwan, mainland China and South Korea make up 55 percent of the EEM. The three largest companies in the ETF – Tencent, Samsung, Alibaba – have a 13 percent weighting.

“Therefore, the cyclicality at a time like this when you’re looking at global trade fears means this is really exaggerated. Emerging markets as an asset class tends to get lumped together,” said Seymour. “Where you’ve been able to outperform is by looking below the surface.”

One way to play the emerging markets is through Direxion’s relative-weight ETFs, says Andrew McOrmond, managing director of WallachBeth Capital. The RWED Emerging Over Developed Markets ETF is 150 percent long emerging markets and 50 percent short the MSCI Europe, Australasia and Far East ETF.

“The long portion is funded by the short and it’s inside of this vehicle,” McOrmond said on “ETF Edge” on Wednesday. “Advanced institutions and clients I’ve always put on relative weight trades. It just hasn’t been available and now it is.”

For the investor looking to go even more granular, Seymour says some individual-country ETFs offer more concentrated opportunities in emerging markets.

“I know this sounds somewhat contrary to the political chaos we’ve seen over the years, but frankly Brazil, Mexico, South Africa and Turkey — while hardly bastions of political serenity — on a relative basis to what’s already rerated especially those currencies look very interesting to me,” he said. “That part of the emerging world, so EM ex-Asia has drastically outperformed in the last 12 months.”

The EWZ Brazil ETF has rallied 13 percent this year, the EWW Mexico ETF and EZA South Africa ETF are up 8 percent, and the TUR Turkey ETF has added 11 percent.