Playing It Safe With Emerging Markets Equities | ETF Trends

Emerging markets stocks and the related ETFs are lagging this year, but the asset class is offering value. Investors can nibble at emerging equities in conservative fashion with the Nationwide Maximum Diversification Emerging Markets Core Equity ETF (MXDE).

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.

MXDE’s methodology helps investors avoid some of the trouble spots in the developing world, including economies hindered by massive debt burdens.

“Solvency concerns in the developing world are nothing new. But as governments stare down the humanitarian and economic shocks of the coronavirus pandemic, some emerging markets with weak financial positions are at greater risk of defaulting on their debts,” reports Sydney Maki for Bloomberg.

Avoiding Offenders

Some of the emerging markets hardest hit by the coronavirus are commodities producers, such as Russia and Latin American economies.

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.

Value option or bear trap—these are the paths presented when it comes to emerging markets (EM), which could face significant risks ahead, making the latter option plausible despite the enticing low-priced EM assets.

“Emerging markets owe more than $8.4 trillion in foreign-currency debt or about 30% of the developing world’s gross domestic product. At least $730 billion is coming due through the rest of this year, as many of these nations see the worst of the virus, which will severely tax health systems,” according to Bloomberg.

MXDE is slightly outperforming the widely followed MSCI Emerging Markets Index year-to-date.

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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.