Combine Broad and Niche ETF Strategies to Diversify into the Emerging Markets | ETF Trends

Investors who are looking to diversify into the emerging markets should consider a core exchange traded fund position and supplement this with a satellite holding.

“I think that an exposure to emerging markets probably ought to have a core and satellite structure to it,” Dr. Burton Malkiel, Princeton Economist, said.

Dr. Malkiel explained that a core emerging market position would include something like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) or the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) as they both provide broad developing market exposure at a cheap cost to investors.

“Both of them have done very, very well relative to active emerging market funds, so I think that’s the way to begin,” Dr. Malkiel said.

After a core position, Dr. Malkiel believed it is fine to “add to that the kind of fund that is designed to capture the kind of growth that we’re likely to see in the emerging markets.”

Specifically, he highlighted the favorable economic trends in the emerging market with a high population and growing middle class, which will contribute to greater consumer spending. Additionally, Malkiel argued that this new generation of middle-income consumers will be more technologically adept and will utilize e-commerce avenues or online retailers to do most of their shopping.

Consequently, investors can look to something like the Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ) to gain exposure to the consumer spending potential of the rising middle class in the growing emerging markets. EMQQ provides exposure to the growing emerging market consumer sector, notably those related to online retailers or the quickly expanding e-commerce industry. The ETF’s underlying holdings include companies must derive the majority of their profits from E-commerce or Internet activities and further includes search engines, online retail, social networking, online video, e-payments, online gaming and online travel.

For more information on global markets, visit our global ETFs category.

Disclosure Information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.

This information should not be relied upon by the reader as research or investment advice regarding the fund or any stock in particular. The opinions expressed may not be representative of experiences of other investors.

Investing involves risk, including the possible loss of principal. Investments in smaller and mid-sized companies typically exhibit higher volatility. The fund is non-diversified. International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Frontier markets generally have less developed capital markets than traditional emerging market countries, and, consequently, the risks of investing in foreign securities are magnified in such countries. These countries are subject to potentially significant political, social and economic instability, which could materially and adversely affect the companies in which the Fund may invest. The Fund invests in the securities of Internet Companies, including internet services companies and internet retailers, and is subject to risk that market or economic factors impacting technology companies and companies that rely heavily on technology advances could have a major effect on the value of the Fund’s investments.

There is no guarantee that the Fund or the index will achieve its investment objective.

As of 08/22/19, EMQQ did not have any holding of Cisco.