Buy into Emerging Markets Today, Get Rewarded in the Future

Risk-off is certainly the order of the day and for those looking to retire in the long-term horizon, getting emerging markets exposure would be beneficial, according to a MarketWatch report. According to the report, investment advisory firm Research Affiliates in Newport Beach, Calif., and money managers GMO in Boston view emerging markets as a strong value play given their current prices thanks to the coronavirus outbreak.

Of course, given the risks involved when investing in emerging markets, they’re not for the faint at heart and the most risk-averse need not apply.

“Our general rule of thumb is that if a market goes down by 7%, that increases the return by 1% a year for seven years,” said Ben Inker, head of asset allocation at GMO.

In the case of the Shiller P/E, which is a price-to-earnings measure that compares share prices to company earnings over a decade, emerging markets present amazing value opportunities.

“Without question, the level of value offered by EM value stocks on a Shiller P/E of 9x is exceedingly attractive,” said GMO senior investment strategist James Montier. “Does this mean that value stocks can’t go down? Of course not…. buying when cheap is no guarantee of immediately higher returns. But it does bode well for good long-term returns.”

Broad Emerging Markets Exposure

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 aforementioned 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 Relative Weight Option

For investors looking for the continued upside in emerging market assets as a result of low oil prices, 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.

RWED seeks investment results that track the MSCI Emerging Markets IMI – EAFE IMI 150/50 Return Spread Index. The Index measures the performance of a portfolio that has 150 percent long exposure to the MSCI Emerging Markets IMI Index and 50 percent short exposure to the MSCI EAFE IMI Index.

For more relative market trends, visit our Relative Value Channel.