With the U.S. and China having a “phase one” trade deal in place, emerging markets (EM) equities have been feeding off the anticipation since last year’s late rally. The deal is essentially the train engine pulling developed market freight cars along while the EM space, the caboose, happily trails behind—last in line, but still moving forward.
″[Emerging market ETFs] tend to be the ones that will work in a late-stage part of the cycle when all the developed economies are chugging ahead and EM kind of comes along with it,” said Nick Colas, co-founder of DataTrek Research. “And it’s a very important point of validation that we are going to get a U.S.-China trade deal this week.”
In the early goings of 2020, the EM space has been a stellar performer as evidenced by the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), which is up 19% within the past year and 2% year-to-date based on Yahoo Finance performance figures.
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.
Other funds have also been rising since the deal, such as the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). The fund is up almost 3% to start 2020 and about 17% the past year.
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.
Relative Value EM Play
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.
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.