Will Certain Emerging Market Economies Outperform the U.S.?

Emerging markets continue to present investors with a value-oriented play for those bold enough to take them on amid the uncertainty known as the Covid-19 pandemic. For certain emerging markets, however, they could give major U.S. index a run for their money.

“I think emerging markets will begin to outperform including India and at the same time, there will be value in otherwise more commodity-related stocks whether you talk about BHP, Rio Tinto, Glencore or the major oils which have grossly underperformed indices or the S&P 500,” Marc Faber noted in the Economic Times. “They look quite attractive and also banks which have grossly underperformed look quite attractive as well.”

Investors looking broad-based exposure to India can use the iShares MSCI India ETF (CBOE: INDA). INDA seeks to track the investment results of the MSCI India Index composed of Indian equities, which measures the performance of equity securities of companies whose market capitalization, as calculated by the index provider, represents the top 85% of companies in the Indian securities market.

Short-term traders looking for leverage can use the Direxion Daily MSCI India Bull 3x ETF (NYSEArca: INDL). INDL seeks daily investment results equal to 300% of the daily performance of the MSCI India Index, which is designed to measure the performance of the large- and mid-capitalization segments of the Indian equity market, covering approximately 85% of the Indian equity universe.

Investors who want broad exposure to EM can look at funds like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO). VWO employs an indexing investment approach designed to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. It invests by sampling the index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the index in terms of key characteristics.

Another fund to consider is the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). EEM seeks to track the investment results of the MSCI Emerging Markets Index. , which is designed to measure equity market performance in the global emerging markets.

^MSEM Chart

^MSEM data by YCharts

EM Currency Hedging Built Into One ETF

While investors can utilize a plethora of currency hedging techniques, one way to do so without overcomplicating the process is via currency-hedged ETFs. One fund that hedges against EM countries like Brazil is the Xtrackers MSCI Emerging Markets Hedged Equity ETF (DBEM).

DBEM seeks investment results that correspond generally to the performance of the MSCI EM US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the underlying index, which is designed to track emerging market performance while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index. It will invest at least 80% of its total assets in component securities of the underlying index.

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