The emerging markets have been hit this year, but many are looking at this international segment for a cheap entry point. While risks remain, investors can look to a low volatility exchange traded fund strategy to diminish the downside risk in the developing countries.
“I think the current administration had us all sort of on the track of, ‘We’re going to take an extreme position then we’re going to kind of, you know, negotiate back from that and just get a better deal done,'” Jason Bloom, Director of Global Macro ETF Strategy for Invesco, said at the Charles Schwab IMPACT 2018 conference. “That has played out with Mexico, Taiwan, Canada, and we’re on that track with the E.U., but a lot of people have said, ‘What’s our posture going to be with China?”
Bloom argued that China will be a significant long-term economic competitor to the U.S. and that will not change any time soon. The China and U.S. tensions is not some short-term issue that can be fixed overnight.
“You have to be prepared for, maybe, some longer-term volatility is that process with China plays out,” Bloom said. “But you can’t discount completely that we could get a deal, and people say, ‘Well look if you look at earnings, EM and China look cheap. Maybe I want to buy now.’ But there’s a risk that it gets cheaper.”
Consequently, Bloom advised investors to look at a low-vol emerging market screen to sift through the riskier plays in the developing economies and focus on those exhibit more stable performance. Specifically, the Invesco S&P Emerging Markets Low Volatility ETF (NYSEArca: EELV) is based on the S&P BMI Emerging Markets Low Volatility Index and consists of the 200 least volatile stocks of the S&P Emerging BMI Plus LargeMid Cap Index over the past 12 months.
“You can have some money at work in case we do get that sort of quick resolution, but if there is continued volatility and it drags on, you’ve got the downside protection,” Bloom added.
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