Emerging markets (EM) investors could be riding a wave of optimism fueled by hopes of a coronavirus treatment as well as antsy traders betting on the notion that the worst of the pandemic could be over. Adding to that euphoria is the U.S. federal government ready to provide additional stimulus if necessary, which all means the good times could be rolling soon for EM investors.
“History suggests that emerging-market investors are likely to have one of their best six-to-12 month stretches in a decade from here, though it will be a very bumpy and psychologically uncomfortable ride,” said Morgan Harting, a New York-based money manager at AllianceBernstein. “We see a number of issues offering equity-like returns and extremely high yields at prices we think are well below recovery values in the event of default.”
Furthermore, the data is trending towards EM investors’ advantage as the MSCI index of stocks climbed 1.5% while bonds rose 1.3% last week. The panic sell-off during the majority of March is getting followed by a nice bounce in the MSCI Emerging Markets index.
Investors who want broad exposure to EM can look at funds like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO). VWO employs an indexing investment approach designed to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. It invests by sampling the index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the index in terms of key characteristics.
Another fund to consider is the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). EEM seeks to track the investment results of the MSCI Emerging Markets Index. The fund generally invests at least 90% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index. The index is designed to measure equity market performance in the global emerging markets. The underlying index will include large- and mid-capitalization companies and may change over time.
A Multi-Factor, International ETF
Another way for investors to get international diversification, but don’t want EM exposure is via a multi-factor approach in developed markets. One way investors can get multiple factor exposure, as well as international diversification, is via the Principal International Multi-Factor Core Index ETF (PDEV).
PDEV seeks to provide investment results that closely correspond to the performance of the Nasdaq Developed Select Leaders Core Index. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the index at the time of purchase.
Furthermore, the index uses a quantitative model designed to identify equity securities of companies in the Nasdaq Developed Market Ex-US Ex-Korea Large Mid Cap Index that exhibit potential for high degrees of sustainable shareholder value, growth, and strong momentum.
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