Without the emerging market tilt, the EAFE index funds at least held up slightly better than broader international stock funds. EFA was only 1.5% lower and VEA was down 1.4% year-to-date.
Meanwhile, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging markets ETFs by assets, fell 14.5% and 15.1% year-to-date, respectively.
The emerging markets have been pummeled in recent weeks on the weakening outlook for growth and currencies, notably as China’s economy shows signs of slowing down. Additionally, developing markets are also bracing for the eventual Federal Reserve interest rate hike, which could cause greater outflows from the riskier emerging markets.
Nevertheless, by separating developing and developed market exposure, investors may more control over their investment exposure. With more money managers seeing an opportunity in the attractively priced emerging markets after the multi-year underperformance, investors may also assess their level risk tolerance and add emerging market exposure through a targeted ETF.
“Emerging markets versus U.S. stocks is the trade of the decade,” Rob Arnott, manager of the Pimco All Asset Fund, told the WSJ. “We’ve gone from disliking emerging-markets equities in 2008 to liking them slightly by 2013 to liking them a lot today. A lot of it hinges on simple measures of valuation.”
For more information on international investments, visit our global ETFs category.
Max Chen contributed to this article.