An Expert’s Guide to Market Volatility | Page 2 of 2 | ETF Trends

2. Is it time to buy emerging market (EM) equities?

Other than commodities, EM equities have been one of the worst performing asset classes in 2015. The recent carnage has only added to their multi-year period of underperformance. As a result, EM stocks, as measured by the MSCI Emerging Markets Index, look fairly cheap on an absolute basis and very cheap relative to developed market equities, as measured by the MSCI World Index. With EM valuations at a significant discount and sentiment toward EM stocks extraordinarily negative, investors with a contrarian streak are wondering if it’s time to buy. My view: it depends. Selectivity in EMs is key. I like stocks in Asia (outside of China) as well as those in EM countries that have been embracing reforms, such as Mexico.

3. Are there any places left to find income?

According to Bloomberg data, bond yields are pretty much exactly where they started this year, while recent volatility has pushed back the likely timing of a Federal Reserve (Fed) rate hike. This environment only exacerbates a problem that investors have been struggling with since the financial crisis: Where can I find income? Most recently, with the energy sector singled out for special punishment, I’m getting a lot of questions about mid-stream Master Limited Partnerships (MLPs) as a source of yield. My answer: I see relative value in U.S. high yield, tax-exempt bonds, international dividend paying stocks and preferred stock.

But despite the damage to markets and confidence, the overall tone of most of my conversations has been cautiously positive. Investors are understandably nervous about the selloff, particularly given its speed and uncertain origin. Still, as the client questions above indicate, my read of sentiment is that, for now, more investors are looking to buy the dip rather than to lower risk. That’s probably the right move.

Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog.