In our weekly recap, we pointed out net inflows activity that occurred last week in VWO (Vanguard Emerging Markets), which seems to be a reflection of bargain hunters emerging with the hopes that recent strength in U.S. domestic equities will carry over to the emerging markets economies.
Emerging markets have lagged in the past year or so, as the MSCI Index is down over 17% in the trailing one year period versus the SPX (S&P 500 Index) roughly unchanged, or down 0.22%. Emerging markets stocks clearly have the potential for higher volatility and downside risk than say U.S. large cap equities, but with greater risk comes greater potential reward as well.
In the emerging markets space, exchange traded fund issuer EGShares has emerged as a specialty issuer over the last several years, and one of the firm’s funds that we focus on today is AGEM (EGShares Dow Jones Emerging Markets Composite). Dow Jones selects 100 companies that are representative of the emerging markets that are seen as leaders across 10 industrial sectors.
From a composition standpoint, the exposure deviates a bit from VWO or EEM (iShares MSCI Emerging Markets), and AGEM is weighted as such from a country perspective: China (27.46%), Brazil (19.59%), Russia (13.84%), South Africa (11.82%), Mexico (9.61%), India (8.46%), Indonesia (2.82%), Chile (2.52%), Malaysia (2.12%), and the Czech Republic (0.77%).
VWO on the other hand, has the following “tilts” from a country basis: China (16.56%), South Korea (14.14%, Brazil 13.87%, Taiwan (10.84%), South Africa (7.65%), India (7.18%), Russia (6.01%), Mexico (4.70%), Malaysia (3.28%), and Indonesia (2.85%) with “other countries” composing the remaining 12.92% of the portfolio.