Previously lagging emerging markets equities are rebounding. Just look at the MSCI Emerging Markets Index, which is higher by 11% over the past month. Investors looking to revisit this asset class may want to do so in cautious fashion with the Maximum Diversification Emerging Markets Core Equity ETF (MXDE).
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.
Proving that it’s well-positioned to capitalize on a sustained rebound in emerging markets stocks, MXDE is topping the MSCI Emerging Markets Index by nearly 600 basis points over the past month.
“While the mania could last longer and go further than fundamentals may suggest, Arthur Budaghyan, BCA Research’s Chief Emerging Markets wrote in a client note Thursday that a weaker than expected global recovery and rising tensions between the U.S. and China pose two big risks that will continue to weigh on emerging markets ‘after this recent mania phase runs out steam,’” reports Reshema Kapadia for Barron’s.
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.
“Meanwhile, Asian countries such as South Korea, Taiwan, and China have been faring better than other EMs given the relative strength of their health care systems,” notes BlackRock. “Greater fortitude on the health front has facilitated re-openings, helping to stem some of the economic damage and supporting stock prices of companies that have a higher relative exposure to those countries.”
MXDE’s methodology helps investors avoid some of the trouble spots in the developing world, including economies hindered by massive debt burdens.
“BCA Research’s recommendation to investors: Those who are already invested in emerging markets or can’t stay on the sidelines should stick with the rally with tight stop orders. But investors with a longer time horizon should wait for a pullback in emerging market equities and currencies,” according to Barron’s.
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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.