Locating Pockets of Emerging Markets Opportunity | ETF Trends

China and Russia continue ensuring that these are volatile times for emerging markets assets, including equities, but those aren’t the only two developing economies that market participants should be evaluating.

For those considering emerging markets allocations, a variety of exchange traded funds offer reduced or no exposure to the two problem children of emerging markets. The Next Frontier Internet & Ecommerce ETF (FMQQ) is part of that group.

To be clear, FMQQ features no exposure to Chinese equities, and the fund’s Russia exposure was recently slashed to negligible levels amid sanctions against that economy by Western nations.

Put it all together, and FMQQ has the makings of an emerging markets ETF that’s appropriate for risk-tolerant investors even at this trying time for equities in developing economies. Additionally, there are longer-ranging themes that could be beneficial to FMQQ investors.

“Some secular trends with significant growth potential remain in a more nascent stage in parts of the world. Case in point: Despite major advancements in digitalization since the pandemic, we’re still finding budding opportunities across e-commerce, online payments and education and training in Asia, South America and even Canada. Many of these types of businesses have been strong performers over several years, and this remains a fruitful area of investigation for us,” according to BlackRock research.

Although China is excluded from the FMQQ roster, the fund remains Asia-heavy, as highlighted by a combined weight of 49.2% to South Korea, India, and Singapore. Overall, Asian economies account for more than half of FMQQ’s roster.

The fund also has credible exposure to Latin America, as Brazil — the region’s largest economy — and Argentina combine for 21.4% of FMQQ’s geographic exposure. Due to what the fund does not feature in its line-up, FMQQ is an avenue to emerging markets growth that’s potentially safer in today’s climate.

“I think these big buckets of opportunity stand firm, despite the loud and ongoing debates around rates and inflation. Those debates will provide a lot of near-term volatility, but that’s exactly the kind of environment that we as active investors seek to manage, mitigate and exploit. Dispersion and volatility continue to provide great opportunities for stock pickers,” adds BlackRock fundamental equities investor James Bristow.

For more news, information, and strategy, visit our Emerging Markets Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.