As is being widely documented, the coronavirus pandemic, slumping commodities prices and weak local currencies are among the factors plaguing emerging markets stocks and exchange traded funds in 2020.
Investors will to wager on a rebound should avoid the weakest link and focus on quality, objectives the Nationwide Maximum Diversification Emerging Markets Core Equity ETF (MXDE) accomplishes. MXDE seeks to track the total return performance of the TOBAM Maximum Diversification Emerging Index.
Under normal circumstances, at least 80% of the fund’s total assets will be invested in the component securities of the index and investments that have economic characteristics that are substantially identical to the economic characteristics of such component securities. The index is designed to create a more diversified equity portfolio of the common and preferred stock of companies in emerging markets relative to traditional market capitalization-weighted benchmarks.
Skirting Problems
MXDE’s methodology helps investors avoid some of the trouble spots in the developing world, including economies hindered by massive debt burdens.
Fortunately for investors considering the Nationwide ETF, MXDE allocates just about 14% of its weight to Russia and commodities-heavy Latin America and the energy sector accounts for just over 3% of the fund’s roster.
“But not all emerging markets have suffered equally or from the same ailments. Some economies are still included in emerging-market indices even though they have mostly emerged: South Korea and Taiwan, for example,” reports Foreign Affairs. “These, along with other emerging economies, such as Thailand, that have strong balance sheets, face what might be called ‘First World problems.’”
Integral to any possibility of a rebound in emerging markets this year is how policy and fiscal response to shoring up what are now sagging economies.
Fortunately, MXDE features scant exposure to some of the most vulnerable emerging economies.
“A third category of emerging economies, including Argentina, Lebanon, and in all probability, Turkey, was headed for trouble even before the pandemic and is likely to emerge from it in worse shape still. The IMF has the tools to handle this most troubled category; governments in these countries are likely to be desperate enough to eventually seek traditional IMF programs conditioned on deep structural and fiscal reforms,” according to Foreign Affairs.
For more on income strategies, visit our Retirement Income Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
