The iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG), the second-largest emerging markets exchange traded fund (ETF), is up 11.56% year-to-date and some market observers believe emerging markets equities can continue delivering upside for investors as 2019 moves along.
IEMG tracks the cap-weighted MSCI Emerging Markets Investable Market Index and holds over 2,200 stocks. IEMG debuted in October 2012 as part of the iShares lineup of core ETFs targeted at cost-conscious buy-and-hold investors. Today, the fund has $60.43 billion in assets under management.
“Our base case is one in which EM (and global) growth continues to improve, which we think will lead to additional upside,” said Goldman Sachs strategists Ron Gray and Caesar Maasry wrote in a note dated April 25, reports ETF Daily News. “But given that the strong year-to-date rally has fallen in line with historical patterns, we think it is important to be aware of the trend that has created the statement ‘Sell in May and go away.’”
IEMG’s geographic lineup is similar to the MSCI Emerging Markets Index as the fund devotes over 56% of its combined weight to China, South Korea and Taiwan. Later this year, Argentina and Saudi Arabia join the MSCI Emerging Markets Index, meaning IEMG will eventually feature exposure to those countries.
Enthusiasm For Emerging Markets
The turnaround comes after EM assets were decimated in 2018 thanks to a mix of trade wars and rising interest rates in the U.S.
While the majority of investors might have been driven away by the red prices in emerging markets during much of 2018, investors are beginning to look at EM opportunities as substantial markdowns, especially if trade negotiations between the U.S. and China result into something materially positive. From a fundamental standpoint, low price-to-earnings ratios in emerging markets ETFs have made them prime value plays as capital inflows continue.
“Growth tends to accelerate on a sequential basis from Q4 to Q1 and decelerate from Q1 to Q2,” the Goldman strategists wrote. “That said, we are looking for a broad uptick in global growth in the second quarter, led principally by stronger U.S. growth, which we believe should moderate the negative seasonality that we have seen in Q2s in years past.”
For investors looking for the continued upside in emerging market assets, whether driven by a weakening USD or continued developments around trade, the Direxion MSCI Emerging Over Developed Markets ETF (NYSEArca: RWED) offers them the ability to benefit not only from emerging markets potentially performing well, but from emerging markets outperforming developed markets.
Conversely, if investors believe that resolutions to the big issues impacting sentiment today are in motion, the Direxion MSCI Developed Over Emerging Markets ETF (NYSEArca: RWDE) provides a means to not only see developed markets perform well, but a way to access a convergence/catch-up in performance of DM relative to EM, a spread that has clearly widened over the past 6 months.
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