Invest in global companies can be easy. It has been incredibly difficult for some international stocks in the era of trade wars and rising interest rates. Many experts think it’s never wise for investors to…
Invest in global companies can be easy.
It has been incredibly difficult for some international stocks in the era of trade wars and rising interest rates. Many experts think it’s never wise for investors to sit out emerging markets altogether, given long-term growth potential in regions across Asia and South America. And, a truly diversified portfolio invests across all geographies at all times instead of simply picking the hot hand. If investing in emerging markets interests you, either as a bargain hunter or as part of a long-term view at diversified returns, here are nine simple ways to access these regions through exchange-traded funds.
The largest emerging markets ETF by assets, this fund boasts nearly $60 billion in total assets under management. It’s also one of the biggest and broadest portfolios, with some 4,700 companies, including China tech giant Alibaba Group Holding (BABA). And as a fund weighted by market capitalization, about 20 percent of assets are in the 10 biggest companies. Still, while a bit top-heavy, this fund gives investors an easy way to access emerging markets without much hassle through a wide variety of regions and individual stocks.
Nearly as large as the prior fund at about $48 billion in assets, this broad play on emerging markets is benchmarked to a separate index — and thus has subtle changes in its holdings and weightings. There are less than half as many stocks, with about 1,900 holdings. And while some of the names overlap, this fund has only 29 percent of its assets in China versus 35 percent for VWO, and 9 percent of IEMG’s assets in India when the Vanguard fund has 12 percent in that region. These differences add up to meaningful changes in the portfolio and performance.
Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE)
The name is a mouthful, but if you take your time with each word, the strategy should make sense. This is an emerging markets fund of large-sized stocks that puts a layer of fundamental analysis on top of a passive index fund to find companies with the best sales and profit trends. While similar in the companies and regions as the prior two funds, this overlay creates interesting differences. For instance, China isn’t even in its top three holdings — instead, it’s Korea’s Samsung and Russian energy stocks Gazprom and Lukoil. FNDE is a more focused way to play emerging markets.
Any emerging markets strategy is not just a play on the appreciation of stocks abroad but also a favorable exchange rate between U.S. currency that you’re investing and the local currencies of your holdings. HEEM hedges against foreign currency fluctuations via currency futures in the regions where the fund is investing. The impact is illustrated with a roughly 3 percent decline for EEM in the last 12 months versus a flat performance for the hedged iShares fund. However, if the U.S. dollar weakens and emerging market currencies rally, this could actually work against you.
Another twist on emerging markets is this Goldman Sachs offering, which selects stocks “based on four well-established attributes of performance: good value, strong momentum, high quality and low volatility,” according to the ETF’s literature. Think of it as a more hand-picked approach to emerging markets, using qualitative criteria instead of just size or geography. Sure, top holdings mirror some other funds with modest investments in China tech stocks Tencent and Baidu (BIDU). But Goldman’s strategy theoretically has chosen these picks intentionally because of their strength — and omitted the weaker alternatives in emerging markets.
WisdomTree Emerging Markets Equity Income Fund (DEM)
Emerging markets investing is not always about big-time growth in risky regions of the world. This dividend-focused fund gives investors a global feel, but with an eye for income instead of rapid growth. There may be more volatility in DEM than domestic dividend funds that focus on mega-cap corporations with a long history of distributions. However, considering that the S&P 500 is yielding only about 2 percent at present and this ETF offers twice that with a 4 percent yield, investors may want to consider looking for income in emerging markets.
What if you want the growth potential of emerging markets to be distilled into the highest potential in the regions with the most upside? That’s where this frontier markets ETF comes in. In many ways, emerging markets like India, Brazil and China have much of their growth behind them. China passed Germany in overall GDP roughly 10 years ago, and more recently passed Japan to become the No. 2 economy by that measure. Instead, this frontier ETF focuses on lesser known stocks in lesser-followed regions including Kuwait, Vietnam and Argentina. There’s more risk, but also greater potential for reward.
EWX follows an emerging markets strategy that is focused only on small-cap stocks. Typical investors often find it difficult to invest with confidence in smaller holdings such as Czech financial Moneta Money Bank or Taiwan-based tech hardware company Chipbond Technology. These picks rarely have good analyst coverage or easy access to financials, and often trade exclusively on foreign stock exchanges. However, if you really want to invest in markets that you can’t access domestically, this SPDR fund is a great way to do that in one single fund.
Emerging markets also pose serious challenges, such as a lack of worker protections or environmental regulations. These issues have prompted many investors to put their money elsewhere. But now, thanks to a growing focus on ESG — environmental, social and corporate governance — investors have a framework to decide which companies are operating with a clear conscience and which ones aren’t. The ESGE fund only selects emerging market corporations that pass ESG standards, so investors can put their money into these fast-growing regions with confidence they are supporting companies that share their values.