Learn to love emerging markets again.
Emerging markets at one point were Wall Street’s greatest love affair. Country-specific funds like the iShares China Large-Cap ETF (ticker: FXI) went vertical during the mid-aughts, and investors thought expanding middle classes in these emerging countries would fuel gains until kingdom come. Reality eventually set in, and EM funds were mired for years. But emerging markets still boast better economic growth than most of their developed brethren, and thus funds focused on these countries still have some growth potential to crow about. These exchange-traded funds provide investors with a few ways to play several emerging markets with a single investment. Rankings are as of this date.
10. iShares Edge MSCI Min Vol Emerging Markets ETF (EEMV)
When you think of emerging markets, you typically think of volatility — which is precisely what the EEMV is designed to combat. EEMV focuses on a number of characteristics that reduce volatility, resulting in a fund loaded with big, blue-chip international stocks such as $150 billion Taiwan Semiconductor (TSM) and $225 billion Tencent Holdings. That results in a decent yield of about 2.5 percent. Like most EM funds, EEMV is heaviest in China (21 percent), but also features significant weights in Taiwanese (17 percent) and South Korean stocks (11 percent).
Expenses: 0.25 percent, or $25 annually for every $10,000 invested (includes 44 basis-point waiver)
9. iShares MSCI BRIC ETF (BKF)
The BRICs — Brazil, Russia, India and China — are the first (and second, third and fourth) name in emerging markets. The member nations are four of the largest emerging markets on the planet, but they’re also the most developed, so you’re missing out on a few “growthier” opportunities. Moreover, the vast majority of BKF is mega-caps and large-caps, including top holdings Tencent Holdings, Alibaba Group Holding (BABA) and China Mobile (CHL), which make up about 18 percent of the fund. BKF is only appropriate if you’re very bullish on China, as the country’s equities make up more than half of the fund.
Expenses: 0.69 percent
8. PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV)
The EELV is another fund that’s charged with taking a high-volatility area of the market and smoothing out the ride for investors. Specifically, EELV holds the 200 least volatile stocks (over a 12-month period) in the S&P Emerging BMI Plus LargeMid Cap Index. What really makes EELV stand out, though, is its refreshing underreliance on the BRICs. China is the only BRIC country represented, and at just 4 percent of the portfolio. Instead, investors get exposure to mostly large caps in countries from Taiwan (20 percent) and Malaysia (15 percent) to Mexico (10 percent) and Chile (6 percent).
Expenses: 0.29 percent (includes 16 basis-point waiver)
7. WisdomTree Emerging Markets SmallCap Dividend Fund (DGS)
WisdomTree’s DGS invests in small-cap firms across 15 emerging-market countries. By focusing on small-cap dividend payers, DGS is a dual-threat play targeting the superior growth potential of smaller companies, as well as good (albeit not great) yield, currently around 2.8 percent. More than half the fund is invested in companies from Taiwan (26 percent), China (14 percent) and Brazil (12 percent). But the holdings themselves aren’t lopsided; top weight goes to Brazilian steelmaker Companhia Siderurgica Nacional (SID) at just 1.5 percent.
Expenses: 0.63 percent
6. Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE)
The large-cap theme continues with Schwab’s FNDE, whose 318 holdings average more than $23 billion in market capitalization. While FNDE does focus on more developed emerging markets such as South Korea and Brazil, it does so in a fairly balanced way. South Korea, Brazil, China, Taiwan and Russia are all weighted between 11 percent and 19 percent of the fund. (Granted, that doesn’t leave much weight for the remaining five countries). FNDE also is heavy on the energy front. Three of the top five holdings — Gazprom, Petrobras (PBR) and Lukoil — play in sector, which all told represents a quarter of the fund.
Expenses: 0.47 percent
5. SPDR S&P Emerging Markets Small Cap ETF (EWX)
SPDR’s EWX is a diverse play, boasting 1,001 holdings to DGS’ 584, as well as a top holding — Chinese tutoring outfit TAL Education Group (XRS) — that makes up a mere 0.65 percent of the fund. Despite the fact that EWX doesn’t have a dividend focus, its yield (2.4 percent based on the past two semiannual payouts) is comparable to WisdomTree’s small-cap dividend offering. EWX is unsurprisingly heavy in Taiwanese and Chinese stocks, which make up more than 40 percent of the fund. The only other double-digit allocation goes to India, right around 10 percent.
Expenses: 0.65 percent
4. iShares MSCI Emerging Markets Small-Cap ETF (EEMS)
Rounding out the trio of small-cap emerging-market funds is the EEMS, which is similar to the prior two funds in that it has a wide holding base (942 stocks) and heavy weightings in Taiwanese and Chinese stocks. That includes top three holdings Sina Corp. (SINA), Sunny Optical and Minth Group. It also throws off a decent yield of 2.3 percent. Where EEMS differs is that South Korea, at nearly 20 percent of the fund, has the largest say in how the fund performs. And from a sector perspective, there’s a great deal of balance, with eight sectors enjoying weights between 7 and 18 percent.
Expenses: 0.69 percent
3. BLDRS Emerging Markets 50 ADR Index Fund (ADRE)
The ADRE features a tight core of just 50 stocks averaging a whopping $73 billion in market cap. The ETF is lopsided on several fronts, including a nearly 40 percent weight in Chinese stocks, a 36 percent allocation to information technology stocks and a top-two pairing of Alibaba and TSM that has each of the tech firms at more than 11 percent of the fund’s weight. The composition has mostly resulted in underperformance over the past half-decade, though ADRE has come roaring back to life in 2016, up more than 13 percent to its benchmark’s 4 percent.
Expenses: 0.3 percent
2. Schwab Emerging Markets Equity ETF (SCHE)
It’s hard to quibble with SCHE’s place among the best in U.S. News & World Report’s emerging-market ETF rankings. SCHE is the cheapest fund among the 10 listed, and it’s also one of the best-performing. That said, there’s nothing unorthodox about SCHE’s composure. It has a nearly 25 percent weight in Chinese stocks, and another roughly 30 percent across Taiwan and India. It also is fairly financial-heavy at nearly 30 percent, with IT a far second at 16 percent. SCHE is just a typical EM fund — but one that’s better than other typical EM funds.
Expenses: 0.14 percent
1. iShares Core MSCI Emerging Markets ETF (IEMG)
iShares’ “Core” funds are designed to provide basic exposure to various areas of the market at a low cost, and the IEMG is a good example of that. Via this ETF, investors are exposed to nearly 2,000 stocks that either are headquartered in or make a majority of their revenues in emerging-market companies. And they get that exposure for one of the lowest expense ratios in the category. Just note that investors also get some typical EM biases, such as a large allocation to China (24 percent) and heavy exposure to financials (25 percent) and tech (22 percent).
Expenses: 0.16 percent
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10 Great Ways to Buy Emerging Markets originally appeared on usnews.com
