Emerging markets ETFs are rebounding and for investors looking for broad-based, cost-efficient funds in this category, the SPDR Portfolio Emerging Markets ETF (NYSEArca: SPEM) is a name to consider.
With an expense ratio of just 0.11% per year, or $11 on a $10,000 investment, SPEM is one of the least expensive emerging markets ETFs on the market.
Major asset managers and investment banks like JPMorgan, Citi and BlueBay Asset Management, among others, have been piling into the emerging markets in recent weeks. According to the Institute of International Finance, flows to emerging market assets in mid-February soared close to levels last seen late January 2018, or days before emerging and global markets plunged, after the Federal Reserve revealed a more dovish stance on monetary policy.
“Another potential catalyst will be the recent announcement by the US Federal reserve on the direction of rates and the Fed’s balance sheet,” said State Street in a recent note. “The more dovish than expected tone should be positive for equities in general, but for EM more specifically. This looser than expected stance could lead to more US dollar weakness and improving global trade. Both would be good for investors in emerging markets.”
China Stoking Flows
Emerging markets ETFs are adding assets in the first quarter and China is a primary reason why. Most of the flows may be attributed to China where foreign capital flows into the market h ave jumped in the first few weeks of 2019 in response to bets on stimulus measures out of Beijing and the awaited announcement of a potential increase in China A-shares exposures to MSCI’s benchmark indices.
China is SPEM’s largest geographic exposure at 32.75%. Taiwan and India combine for almost 26% of the fund’s weight.
While the emerging markets rebound is prompting some speculation of a crowded trade, institutional positioning in the asset class remains light, which could portend further upside if those money managers increase exposure to developing economies.
“Finally, institutional positioning in EM is now so light (even compared to historically underweight institutional allocations) that we would expect to see some reversion in due course, especially if EM growth picks up versus developed markets,” according to State Street.
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