5 Reasons to Pay Attention to Emerging Market ETFs | ETF Trends

Emerging markets have long been seen as sources of cheap labor. However, history tells us that these markets are actually hotbeds of business innovation. Just look at Japan and how its auto business came to rival (and surpass) our own. If history repeats itself, then investors can potentially find a lot of upside in emerging market exchange traded funds (ETFs).

According to a special report from the Economist, in the mid to late 1900s, Japan reinvented the automobile manufacturing business by introducing a system now referred to as “lean manufacturing.” The system allowed Japanese manufacturers to create cars more cheaply, more quickly and with better reliability compared to their American counterparts. The rest, as they say, is history. [5 Alternatives for Getting Oil Exposure.]

We can see the same types of developments coming out of emerging markets today.

  • These markets are reinventing systems of production and distribution to bring us $3,000 cars, $300 computers and $30 cell phones. Already, emerging markets are ahead of developed countries in areas such as mobile finance and online games. [5 Emerging Market ETFs Outperforming EEM and VWO.]
  • Not only are emerging markets innovating, but they are also doing so on a global level. There are 21,500 multinational companies based in emerging markets, according the United Nations World Investment Report.
  • The world’s biggest multinationals are ramping up investment in emerging market brainpower, further solidifying the claim that innovation is occurring within emerging markets. For example, Cisco (NASDAQ: CSCO) is spending $1 billion on a second global headquarters in Bangalore. [Thailand ETF Worth the Risk?]
  • Population growth within emerging markets will continue to outpace growth in the developed world, providing a growing consumer market and workforce.

There is always risk involved with emerging markets in the form of political turmoil, pirating, poverty, or underdeveloped infrastructure, to name a few. But the potential is definitely there, and investors can take a look at the following funds to diversify into the emerging market sector. Have a trend following strategy in place to help manage those risks and protect yourself. [How to Follow Trends.]

For more stories on emerging markets, visit our emerging markets category.

  • iShares MSCI Emerging Markets Index (NYSEArca: EEM)

  • Vanguard Emerging Markets Stock ETF (NYSEArca: VWO)

  • EGS DJ Emerging Mkts Titans Composite (NYSEArca: EEG)

  • Ultra MSCI Emerging Mkts ProShares (NYSEArca: EET)

  • SPDR S&P Emerging Markets (NYAR: GMM)

Sumin Kim contributed to this article.

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.