Emerging markets focused exchange traded funds (ETFs) may feel the effects of Venezuelan president Hugo Chavez nationalizing the Compania Anonima Nacional Telefonos de Venezuela (VNT). As a result, shares of VNT dropped 10% Monday, and 27% by Tuesday, reports Roger Nusbaum of TheStreet.com. This occurrence is a good example of the risks involved with emerging market stocks and funds. As a rule, there should be no more false security in a stock just because it is listed on the NYSE. The easiest thing an investor can do is not buy into a theme too much. Remember, a stock is never safe from risk, and with foreign investment, whatever happens in that country puts the investor at even more risk. To play it safe, Nusbaum offers a 2% weight and then trim back if it goes significantly.
The most popular emerging markets ETF, iShares MSCI Emerging Markets Index (EEM), is only 20% invested in emerging markets stocks and not one is a Venezuelan company.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.