U.S. equities continue to make new all-time highs.
But some investors are starting to wonder when the balloon will pop.
Or said differently, do other markets offer more value?
Emerging markets and Asia Pacific equities topped our TrackstarIQ searches amongst institutional advisors this week.
And it’s not entirely surprising.
Chinese stocks took it on the chin after ride-sharing Didi (DIDI) debuted on the U.S. exchanges only to face a crackdown from the Chinese government.
In the last two weeks, the iShares China Large Cap ETF FXI is off by almost 6.5%.
That led to a similarly poor performance by the iShares MSCI Emerging Market ETF EEM which is down more than 3.5% over the same period.
The thing is, not all emerging markets are created equal.
In fact, there’s no reason why an investor can’t or shouldn’t pick the best of the bunch.
That’s why we’re breaking down the most popular emerging market ETF and giving you some strategies to enhance your portfolio.
iShares MSCI Emerging Market ETF EEM
The gold standard for Emerging markets, the EEM breaks out into the following countries.
To gain exposure to any of these markets individually, here’s a quick list of suitable ETFs:
- Hong Kong: EWH iShares MSCI Hong Kong ETF
- Taiwan: EWT iShares MSCI Taiwan ETF
- South Korea: EWY iShares MSCI South Korea ETF
- India: INDA iShares MSCI India ETF
- China: FXI iShares China Large-Cap ETF
- Brazil: EWZ iShares MSCI Brazil ETF
- South Africa: EZA iShares MSCI South Africa ETF
- Saudi Arabia: KSA iShares MSCI Saudi Arabia ETF
- Russia: RSX VanEck Vectors Russia ETF
- Mexico: EWW iShares MSCI Mexico ETF
Expense ratios range from 0.5%-0.75%.
Using the weighting above, you can reduce or eliminate your exposure to various markets through options.
For example.
Let’s say that you want to remove exposure to China.
With a $100,000 investment in the EEM, ~$6,540 are allocated to Chinese companies.
You can purchase the equivalent of $6,500 in put options, bets that payoff when China falls, as a way to hedge against that specific part of your portfolio.
Luckily, there are simpler options such as the iShares MSCI Emerging Markets ex China ETF EXMC which does exactly that.
However, if you want custom tweaks amongst several countries, then options may be the way to go.
You can also get more specific and invest in small caps, dividend payers, or high growth in some of these markets
Our hot take
Don’t just take the headlines about emerging markets as one group to write off.
Really dig into the individual countries. You might be surprised at what you find.
Questions from clients:
- What’s the difference between emerging markets and developed markets?
- Where do smaller markets like Egpyt, Thailand, and Kenya fall?
- How do currencies play into emerging market investments?