Getting emerging markets (EM) exposure comes with its own nuances like geopolitical risk, making it a tricky space to navigate for novice and experienced investors alike.
Geopolitical risk in the current market environment includes the impact of technology on EM countries, such as cyberattacks that could cripple a country’s network, and a potential resurgence of COVID-19 cases. In addition, investors must face the typical geopolitical risks, such as terrorist attacks and other political crises or conflicts.
“Business leaders and board members are generally well aware that the global geopolitical environment has become more volatile,” a Continuity Central article notes. “A spate of global corporate surveys in recent years, across industry sectors, show concern about geopolitical instability has spiked amongst directors and management teams.”
Despite the risks, emerging markets offer growth potential for investors willing to exchange the risk for higher rewards. However, it pays to be strategic when deciding to ultimately expose an investment portfolio to EM assets.
Emerging Markets Made Easier
To make EM exposure easier, it helps to be strategic by using funds like the Invesco FTSE RAFI Emerging Markets ETF (PXH) that do all the heavy lifting in terms of savvy ways to approach EM investing. PXH seeks to track the investment results (before fees and expenses) of the FTSE RAFITM Emerging Index.
The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index, as well as ADRs and GDRs that represent securities in the underlying index, which is designed to track the performance of securities of companies domiciled in emerging market countries with the highest-ranking cumulative score, selected from the constituents of the FTSE Emerging All Cap Index, as determined by the index provider.
“PXH is linked to a RAFI-weighted index that determines components and individual security weightings based on fundamental measures such as book value and cash flow,” an ETF Database analysis says. “As such, PXH breaks the link between stock price and security allocation and may have appeal as an alternative to market capitalization weighting systems that have numerous potential drawbacks.”
“PXH features the same biases that are common in many EM ETFs, including big weightings to energy and financials,” the analysis adds further. “This fund does offer nicely balanced exposure, with about 300 components (though a few account for a big portion of assets).”
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