Emerging markets equities and the relevant exchange traded funds are among this year’s most vibrant asset classes. Added good news comes in the form of some professional investors betting on continued upside for developing world equities.
Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), two of the largest emerging markets ETFs, are surging and gathering assets at a rapid rate. VWO and EEM are up 25.7% and 29.6%, respectively, year-to-date. One of the main differences between the two funds is that EEM includes South Korean stocks while VWO does not classify Asia’s fourth-largest economy as an emerging market.
“Mark Mobius of Templeton Emerging Markets Group, Alejo Czerwonko at UBS Wealth Management and a host of money managers from Standard Life to Lazard Asset Management are finding reasons to buy. Although valuations are climbing, optimists say corporate earnings will improve as economic growth rebounds, supporting another leg-up for equities,” reports Aline Oyamada for Bloomberg.
Moreover, the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG), the low cost alternative to EEM, is one of this year’s top asset-gathering ETFs as investors have continually looked for low-fee options when embracing ex-US equities.
ETF investors also threw money into overseas markets where valuations appear cheaper relative to the loftier prices in the U.S. – U.S. markets are trading at forward price-to-earnings of around 18 times, compared to historical averages of 15 times. Year-to-date, IEMG and VWO are among the top 10 ETFs in terms of new assets added.
“Stocks and currencies from developing nations are poised for their best year since 2009 as a drop in volatility with a relatively benign political and economic backdrop encourage bets on emerging markets,” according to Bloomberg.
The weaker dollar has been helping emerging markets assets this year and many bond traders believe the Federal Reserve will not raise interest rates next month and it is possible the Fed will not do so again this year.
Related: How ETF Traders Are Repositioning After August Selling
Although emerging markets exchange traded funds are among this year’s most prolific asset gatherers in the U.S., some market observers argue that emerging markets equities are under-owned by big investors and that the asset class has more room to rally.
“We are seeing returns on equity in EM once again at a premium relative to developed markets. And I think that is a very unique opportunity because EM is still at a hefty discount relative to developed markets,” said Rohit Chopra, portfolio manager at Lazard Asset Management, in an interview with Bloomberg.
For more information on the ETF market, visit our ETF performance reports category.
Tom Lydon’s clients own shares of VWO.