So how can you nimbly capture the broader emerging markets opportunity? We suggest looking to exchange-traded funds (ETFs), which provide a quick and easy way to gain all types of market exposures. ETFs are simple to trade, relatively low cost and tax efficient. However, it’s important to know that not all ETFs are the same. Factors such as exposure, which is determined by the underlying index, and the portfolio management (yes, index funds have portfolio managers, too) can have a meaningful impact on returns.
For example, unlike broad EM ETFs that cover only large- and mid-cap stocks, the iShares Core MSCI Emerging Markets ETF (IEMG) covers large-, mid- and small-cap companies – around 99% of the investable EM market (as defined by MSCI) across 21 countries. The addition of small-caps can make a difference: over the past five years, that segment has outperformed mid- and large-cap stocks. Importantly, the MSCI EM Investable Market Index includes a large weighting to Korea, a country not represented in all EM indexes. IEMG has also never paid capital gains, making it more tax-efficient than comparable mutual funds. At the same time, the fund is backed by the expert risk management and analytics of BlackRock. All in all, we believe the fund is a smart way to get back into the race.
Heidi Richardson is a Global Investment Strategist at BlackRock, working with Chief Investment Strategist Russ Koesterich. She is the newest contributor to The Blog.