While emerging markets (EM) started 2019 on the upside following a tumultuous showing in 2018, the U.S.-China trade war tamped down gains, but that doesn’t mean all EM equities are suffering. One exchange-traded fund (ETF) investors should consider as the trade war makes the EM space more challenging is the VanEck Vectors Vietnam ETF (NYSEArca: VNM).
VNM seeks to replicate as closely as possible the price and yield performance of the MVIS® Vietnam Index. A company is generally considered to be a Vietnamese company if it is incorporated in Vietnam or is incorporated outside of Vietnam but has at least 50% of its revenues/related assets in Vietnam.
As of Sept 11, the fund is up 6.94% according to Yahoo Finance performance numbers.
“We’ve significantly increased exposure in Vietnam this year, and a good part of this is the trade war,” said Laurent Saltiel, chief investment officer of emerging markets growth at AllianceBernstein. “Vietnam is the major beneficiary of a trade war between the U.S. and China.”
According to Slatiel, interest in Vietnam was happening before the trade wars put a stranglehold on the EM space. As China looks to become less dependent on the U.S. for resources, Vietnam could be a diversification option for EM investors.
“The trade war is going to accelerate this change no matter what is the ultimate outcome,” Slatiel said. “Even if there is a deal in the next 12 months, a lot of U.S. companies will be thinking very hard about their supply chains, and they want to reduce their dependence on China. It’s too risky to be exposed to just one country.”
Relative Value ETF Options
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.
On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value. In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express an emerging over developed investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.
For more market trends, visit ETF Trends.