Emerging markets (EM) have taken a beating amid the Covid-19 pandemic, but technical indicators lately have been showing some signs of bullishness in EM, which should open up some opportunities for exchange-traded fund (ETF) investors.
Per a recent Bloomberg report, “MSCI Inc.’s gauge for developing-nation stocks has formed a so-called golden cross, a bullish trading pattern seen when an asset’s 50-day moving average crosses above its 200-day counterpart. The tidal wave of central-bank stimulus has fueled a 43% rally in emerging-market stocks from a four-year low in March.”
“It probably is a valid signal of the bull trend,” said Nicholas Ferres, the chief investment officer at Singapore-based hedge fund Vantage Point. “Emerging-market equities have more valuation upside.”
The MSCI Emerging Markets index is well on its way for a recovery after its own serendipitous fall during the height of the pandemic sell-offs in March.
EM Opportunities in ETFs
ETF investors can take a look at the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Morningstar® Emerging Markets Factor Tilt IndexSM.
The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to size and value factors relative to the Morningstar Emerging Markets Index, a float-adjusted market-capitalization weighted index of companies incorporated in emerging-market countries. The fund will invest at least 80% of its total assets in the securities of the index and in ADRs and GDRs based on the securities in the index.
When looking for more broad exposure to emerging markets versus single country exposure, one fund to consider for broad-based emerging markets exposure, but with less volatility risk is the FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE). QLVE seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Emerging Markets Quality Low Volatility IndexSM.
The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to a broad universe of securities domiciled in emerging market countries. Under normal circumstances, the fund will invest at least 80% of its total assets in the securities of the underlying index and in ADRs and GDRs based on the securities in the underlying index.
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