Taken a look at emerging markets lately? They’re picking up some steam to start the year thanks to low valuations and a degree of separation from the domestic U.S. market that’s expecting a recession. Diversified emerging markets ETFs have returned 2.7% over one month compared to -16.8% returns over one year according to YCharts – which makes an active emerging markets ETF like the WisdomTree Emerging Markets Efficient Core Fund (NTSE) and its particular approach a notable one.
NTSE puts together what is effectively a 60/40 portfolio that combines emerging market stocks and U.S. Bond exposure, buoying what is an appealing equities area right now with resurgent fixed income offerings. It puts 90% of its assets in emerging markets equities with the 10% left in Treasury futures, including 500 market cap-weighted emerging markets stocks.
The Treasury exposure meanwhile ranges from two and 30 years in maturity, targeting a three to eight-year duration with the notional Treasury futures exposure at 60% of the fund’s assets, creating a final 60/40 allocation leveraged 150% for the ETF overall according to Factset.
Why emerging markets? There are some reasons to look to a recovery, whether that’s China in a cyclical recovery thanks to government stimulus or due to the aforementioned cheap valuations across emerging markets. Add in that many developing countries didn’t dip into debt as much as they could have during the heights of the COVID pandemic, raising rates early on as the virus spread, and they could afford to loosen up and drive growth this year.
NTSE has taken in $5.5 million over the last five days in net inflows, returning 4.2% over one month and 12.3% over three months and outperforming its ETF Database Category Average over both time frames. Having launched almost two years ago, it’s started to pick up steam after some tougher performance in last year’s broader market selloff and fixed income’s time wandering in the yields desert.
There’s still quite a bit of uncertainty about 2023 facing investors, a lot of it coming from the Fed in the U.S. That may make looking abroad an appealing alternative, with an active emerging markets ETF like NTSE and its pairing of bonds and equities an option to consider.
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