Is This Emerging Markets ETF a Good Buy Amid Volatility?

An end-of-the-summer sell-off appears to be ensuing in the major U.S. indexes right now, which could present an opportunity for ETF investors who think equities are too overheated. One company’s algorithm identified an emerging markets ETF as a top buy.

It’s an interesting play given that the Covid-19 pandemic will weigh heavily on emerging markets as they look to recover economically. In the meantime, the U.S. indexes need to slough off a slow start after a long weekend.

“It will remain to be seen if there will be a follow-through after the Labor Day long weekend, or if investors will use the pullback as a buying opportunity,” a Forbes article noted. “On the economic side, there was the jobs report out on Friday that showed gains of 1.37 million jobs in August, topping expectations of 1.32 million, and the unemployment rate fell to an unexpected 8.4% versus expectations of 10.2%. Pretty good rebound, considering most economists did not expect single digit unemployment for some time.”

Analytics company identified one particular ETF that stood head and shoulders above the rest— iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB). The fund seeks to track the investment results of the J.P. Morgan EMBI® Global Core Index composed of U.S. dollar-denominated, emerging market bonds.

The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index. The index is a broad, diverse U.S. dollar-denominated emerging markets debt benchmark that tracks the total return of actively traded external debt instruments in emerging market countries.

^MSEM Chart

^MSEM data by YCharts

“There was one Top Buy on the ETF list this week in the iShares JP Morgan USD Emerging Markets Bond ETF EMB -0.1%. Apparently, our deep learning algorithms think that the attractiveness of emerging market sovereigns yields outweighs the local here, expecting this ETF to go higher in the near term,” the Forbes article added. “Fund flows look like they agree, with the 1-week inflow of $473.2 million, a 30-day inflow of $699.3 million, and a 90-day inflow of $2.0 billion. These are strong inflows considering the assets under management of $16.8 billion. The net expense ratio of the fund is elevated at 0.4%, but given the global nature of the holding, this can be expected. After a sharp drop initially during the coronavirus pandemic, the holdings have recovered quite remarkably since.”

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