Is now the time to look abroad in an emerging markets ETF? U.S. equities have become very expensive and, despite the potential for rate cuts domestically, they have yet to actually materialize. Indeed, while many investors may be hyping up rate cuts, we may have fewer than anticipated. That, or rate cuts may fail to materialize as quickly as desired. Rate cuts and expensive equities speak to the appeal of diversifying abroad in an emerging markets ETF.
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Emerging markets strategies can offer access to firms with significant upside. India, for example, has a massive population and a burgeoning middle class. While historically some investors may have assumed that emerging markets investing focused overmuch on resource extraction, nations like India show that emerging markets can offer tech upside, too.
Looking closer to home, reshoring of key supply chain links in countries like Mexico could benefit that emerging market, too. Finally, many emerging markets have already finished their rate cycles in response to inflation.
Of course, many investors look at emerging markets and fear, perhaps undeservedly, exposure to China. While China remains a key global investment area, debt and consumer spending issues linger. Given that China constitutes an important part of most emerging markets indexes, then, that can turn some investors off.
That’s where a strategy like the KraneShares MSCI Emerging Markets ex China Index ETF (KEMX) comes in. The emerging markets ETF offers emerging markets exposure without including China. The fund charges 24 basis points (bps) for its approach. Its index selects and weights its large and mid-cap constituents by market cap.
KEMX has outperformed both its ETF Database Category and Factset Segment averages over the last year. Per KraneShares data, it has returned 17.1% over the last year compared to just 10.4% for its Factset Segment average. For those investors looking for an emerging markets ETF without China risk, KEMX may appeal.
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