How to Use ETFs to Target Emerging Markets (CNBC)
CNBC has a lengthy article (5 ways to target emerging markets using ETFs) written by Todd Rosenbluth, the director of ETF Research at S&P Capital IQ, which gave the following important considerations or tips for selecting emerging market ETFs:
- Know your benchmark indices. Vanguard has already transitioned away from the MSCI index standard to a FTSE benchmark in order to eliminate exposure to South Korea which the FTSE considers to be an advanced market rather than an emerging one – see Why the MSCI Emerging Markets Index Has Some BIG Problems (WSJ). This also gives the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO) more exposure to Taiwan, Brazil and India than the iShares MSCI Emerging Markets Indx ETF (NYSEARCA: EEM) has.
- Go beyond the big ETFs. While EEM may have a market cap of more than $38 billion, its not the only potentially good emerging market ETF out there as iShares has introduced the Core series. For example: The iShares Core Emerging Markets (NYSEARCA: IEMG) has additional exposure to small cap and mid cap stocks that are more tied to local economies and it also comes with lower expenses.
- Large caps or small caps. Its possible to focus on one slice of the emerging market spectrum e.g. invest just in large cap or small cap stocks. For example: The SPDR S&P Emerging Markets Small Cap ETF (NYSEARCA: EWX) focuses on emerging market small caps. However, just remember that such ETFs come with more risk as there is less diversification and perhaps less liquidity.
- Avoid Certain Regions. To eliminate exposure to one region in favor of exposure to another e.g. to avoid Latin America in favor of Asia, there are ETFs that can do that. For example: The SPDR S&P Emerging Asia Pacific ETF (NYSEARCA: GMF) is focused on some of the fastest-growing emerging markets of Asia and eliminates any Latin America exposure.
- Invest More in One country. If there is one emerging market country that you want additional exposure to or rather specific sectors of one country you want to target, that’s also possible with ETFs. For example, the iShares MSCI Brazil Index ETF (NYSEARCA: EWZ) might be the main way to gain exposure to Brazil, there is also the more lightly traded Global X Brazil Financials ETF (NYSEARCA: BRAF) and EGShares Brazil Infrastructure ETF (NYSEARCA: BRXX) that offer a way to tap potentially hot sectors of the country.
To read the whole article, 5 ways to target emerging markets using ETFs, go to the website of CNBC.
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