In what remains a challenging climate for investors considering emerging markets equities, the Nationwide Maximum Diversification Emerging Markets Core Equity ETF (MXDE) remains a compelling way for market participants to remain engaged with the asset class.
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.
“Not only are stocks, bonds, and currencies of developing economies reacting to the Covid-19 pandemic in very different ways, but the fallout is quickly creating two distinct camps of winners and losers,” reports Bloomberg.
MXDE Avoids Trouble Areas
The respective currencies of emerging markets are already feeling the ill effects of the coronavirus pandemic, but that’s not all. Like the rest of the world, many companies are facing default on their debt and emerging markets aren’t precluded from that same dilemma.
Some countries, not necessarily China, are weighing on emerging markets debt and equities this year.
“Brazilian markets are nervous as President Jair Bolsonaro’s anti-graft credentials were thrown into doubt after Sergio Moro abruptly resigned as justice minister. Sovereign bonds extended declines on Monday after stocks fell as much as 9.6% on Friday and the currency reached an all-time low,” according to Bloomberg.
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.
Another MXDE benefit is that its reduced dependence on commodities producers keeps investors away from hefty exposure to countries with flimsy fiscal positions.
Another way for investors to get international diversification, but don’t want EM exposure is via a multi-factor approach in developed markets. One way investors can get multiple factor exposure, as well as international diversification, is via MXDE.
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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.