Emerging Market ETFs Look Strong But Pick Your Spots

Developing countries and emerging market exchange traded funds have experienced high inflows and delivered a strong performance in recent weeks, but investors should still pick their spots as the various economies can exhibit uneven growth.

A number of factors helped support the emerging market play, including signs of stabilization in China, leveling of commodity prices and a depreciating U.S. dollar, according to a BlackRock research note. Moreover, investors may have been looking for alternatives as developed markets exhibited greater volatility.

The Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging market ETFs by assets,up 18.2% and 17.7% year-to-date, respectively.

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As more investors look to the emerging markets, people should be aware that the various economies will produce varying levels of growth.

“Although we see further potential upside, not all EMs offer attractive outlooks, and therefore selectivity remains our approach to emerging market equities,” BlackRock said. “We favor countries that are committed to structural reforms as well as those that are better positioned to benefit from the current environment such as India and ASEAN countries.”