Emerging Markets ETFs

It’s always a good idea to check in on your portfolio to make sure it’s still giving you the exposure you originally intended.

But just like eating an apple a day or flossing every night, most of us tend to ignore this kind of well-intentioned advice.

However, something I’m seeing in exchange traded product (ETP) flows and a chart my team put together recently made me think twice about ignoring my portfolio – especially when it comes to my emerging market holdings.

Take a look at these side-by-side charts, showing the MSCI Equity Sector Weightings from 1995-2013. One chart tracks sector weightings among emerging markets while one tracks sector weightings among developed markets.

If I asked you to label one chart for emerging markets and one for developed, could you do it?  It turns out the one of the left is for EM and the one on the right is for DM. But what’s so surprising to me is that over this 18 year period, how similar the sector weightings between these two types of markets has become.

While investors often associate the emerging world with resources, these days, emerging markets are just as likely to be associated with banks. Financials make up 28% of the MSCI Emerging Markets Index, compared with a 22% combined share of energy and materials and, interestingly, a 21% financials share in developed markets.