As investors scramble to prognosticate President Donald Trump’s effect on equities, more investors are taking a second look at emerging market exchange traded funds.
ETF Trends publisher Tom Lydon spoke with Ed Kerschner, Chief Portfolio Strategist at Columbia Threadneedle, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk the renewed focus on the emerging markets.
“A lot of our focus is on the emerging markets, and there’s a fear out there that Trump is going to put us in trade wars and that’s the end of the emerging markets,” Kerschner said.
Many view developing countries as export-oriented economies that heavily rely on trade with larger economies, like the U.S. With Trump’s more protectionist rhetoric and an “America first” mantra, observers have warned that emerging markets could suffer if trade is stifled.
However, many are overlooking the fact that the U.S. also relies on exports to its partners in the developing economies as well.
“But if you look at the numbers, people are shocked; only sixteen percent of emerging market exports actually go to the United States,” Kerschner said. “Forty percent of emergings export with each other…. Forty-six percent of U.S. exports go to the emerging markets.”
Consequently, starting a trade war with emerging markets may do more harm than good.
“If we were to really start a trade, it is proverbial cutting off your nose to spite your face,” Kerschner said.
Among Columbia Threadneedle’s emerging market ETF suite, investors may find a focus on consumer-related strategies, including the Columbia India Consumer ETF (NYSEArca: INCO), Columbia Emerging Markets Consumer ETF (NYSEArca: ECON) and the Columbia Emerging Markets Domestic Demand ETF (NYSEArca: EMDD). Kerschner pointed out that among the growth opportunities offered by the emerging markets, we see that there are three billion potential consumers.
Most investors may rely on benchmark emerging market index exposure, like the MSCI Emerging Markets Index, which only provides 15 to 20 percent consumer weights. “You’re not getting a consumer focus,” Kerschner said.
“If you want to invest in the emerging markets because this is going to be the fastest growing economy in the world and it’s growing because – largely going forward – of this new consumer economy, then focus on stocks that are in emerging market that sells to the consumer sector,” Kerschner added.
INCO provides targeted exposure to India’s consumer sector, including automobiles, personal products, auto components, food products, textiles apparel & luxury goods, media, tobacco, beverages and household products.
ECON allows access to consumer discretionary and consumer staples across the broader emerging market groups, including South Africa, China, India, Mexico, Brazil, Thailand, Russia, Indonesia, Chile, Philippines and Malaysia.
Lastly, EMDD only includes emerging market companies tied to domestic demand, specifically those in consumer staples, consumer discretionary, telecom, healthcare and utilities.