As fund managers rethink their strategy on emerging markets (EM), one consideration advisors and retail investors can consider is tilting toward value if they want to add EM assets to their portfolio. In particular, one exchange traded fund (ETF) worthy of consideration is the Avantis Emerging Markets Value ETF (AVES).
China is usually mentioned when considering EM equities. As the country continues struggling economically, there are other avenues to take for EM exposure. China’s recent stimulus measures may help revitalize economic growth. Until then, a number of investors have been steering clear of the second largest economy.
“Chinese stocks took a record hit as foreign investors yanked $15.5 billion out of emerging market portfolios in August, the largest monthly outflow in a year, as concerns over China’s growth permeated across equities in an otherwise strong year for EMs,” a Reuters article explained. “A monthly report from the Institute of International Finance showed non-residents funneled $14.9 billion out of China stocks, the largest monthly outflow on records back to 2015, while Chinese debt saw $5.1 billion in outflows.”
Inflation continues to be a thorn in the side of central banks, especially in developed markets. Because EM assets are tied to the strength of the local currency, a stronger dollar spells weakness for EM currencies. Rising interest rates to combat stubborn inflation will continue to apply additional downward pressure.
That’s not to say there aren’t opportunities in the EM space. It could mean looking at specific countries that are exhibiting strength, like Asia-Pacific, or by simply sticking to the fundamentals. That’s exactly what AVES does.
Emerging Markets Fund AVES Focuses on Fundamentals
This value tilt helps identify opportunities offering short-term growth prospects and long-term sustainability. With over 1,400 holdings (as of July 31), AVES offers deep diversification in holdings across EM equities with an eye on value.
Per its product website, the fund “invests in a broad set of companies of all market capitalizations across emerging markets countries and is designed to increase expected returns by focusing on firms trading at what we believe are lower valuations with higher profitability ratios.”
Additionally, the fund is actively managed, so holdings can be adjusted if market conditions warrant portfolio adjustments. That is important in EM equities where volatility can be relatively high versus developed markets.
AVES does all this with a relatively low expense ratio of 0.36%.
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