Monetary policies in developing economies also remain supportive as many central banks are seeking looser policies instead of tightening, which may support risk assets like emerging equities by encouraging local money to seek higher rates of return. While some may be concerned about devaualtion in emerging currencies compared to the U.S. dollar, rapid devaluation has not materialized in the post U.S. election environment.
Lastly, Deutsche also showed that emerging markets have exhibited lower volatility over the past 16 years and provide relatively low correlation to U.S. stocks over time, which may be good reasons to include EM as part of a diversified international equity portfolio.
Investors have a number of emerging market ETF options to choose from, including those that track benchmark indices like the MSCI Emerging Market Index. However, Deutsche Asset Management has come out with a number of alternative or smart beta EM options that could provide enhanced returns and diminish potential risks.
For instance, the Deutsche X-trackers MSCI Emerging Markets Hedged Equity Fund (NYSEArca: DBEM) targets the emerging markets, but diminish the negative effects of depreciating emerging currencies on U.S. dollar-denominated portfolio returns.
The Deutsche X-trackers MSCI Emerging Markets High Dividend Yield Hedged Equity ETF (NYSEArca: HDEE) also provides a currency-hedged option for emerging market exposure, but HDEE focuses on high dividend yielding assets for those income-minded investors.
The Deutsche X-trackers FTSE Emerging Comprehensive Factor ETF (NYSEArca: DEMG) help limit correlation and diversify a portfolio to better handle changing conditions over longer periods by screening for historically proven factors like quality, value, momentum, low volatility and size.
For more on smart beta ETFs, visit our Smart Beta Channel.