On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Columbia EM Core ex-China ETF (XCEM) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Columbia EM Core ex-China ETF (XCEM)
Chuck Jaffe: One fund on point for today. The experts to talk about it. This is the ETF of the Week. Yes. Welcome to the ETF of the Week, where we examine trending new, newsworthy, unique, and intriguing exchange traded funds with the help of Todd Rosenbluth, head of research at VettaFi. They’ve built an entire suite of tools that are going to help you become a savvier, smarter, and better investor in exchange traded funds. It is VettaFi.com if you’re looking for more information. Todd Rosenbluth, great to chat with you again.
Todd Rosenbluth: Great to be with you again, Chuck.
Chuck Jaffe: Your ETF of the Week is?
Todd Rosenbluth: The Columbia EM Core ex-China ETF (XCEM)
Chuck Jaffe: XCEM, the Columbia EM Core ex-China ETF. Why this fund now, Todd?
Todd Rosenbluth: Well, emerging markets maintain a key part of many advisor and investor portfolios, but China has been dragging down the broader emerging markets. It underperformed in 2023. It’s underperforming again in 2024 versus broader emerging markets. And many people want to either control the exposure they have toward China or perhaps even eliminate it. We think perhaps an ETF like this Columbia Fund can in fit well into a portfolio.
It’s low cost. It gives you that broad exposure to major emerging markets. But post China out, you have better control over how much exposure you have to this emerging market.
Chuck Jaffe: In terms of emerging markets now, there are those who love it and say that’s where the value is and there are those who hate it, who say, look at how rough the ride has been, and why would you expect that to change for you? I know you’re sort of agnostic.
You want to be making sure you cover all your bases from an asset allocation standpoint, but how much of a portfolio are you willing to let emerging markets be? And is it a bigger portion to you if you remove China and you therefore maybe dampen some of the volatility?
Todd Rosenbluth: So that’s right — dampening the volatility. That’s why people often are hesitant to have exposure to emerging markets. China is, of course, the largest, but also one of the more volatile markets. So we think a healthy slice of 5% to 10% of a broader portfolio makes sense to have in emerging markets. You get exposure to India, to Taiwan, to South Korea, to other fast-growing economies — China being one of them in other broader emerging market ETFs.
And we think you can pair this ETF well with a more diversified portfolio and better reduce their risk. China represents between 20% and 25% of the broader emerging market needs. That’s too much for many people who are concerned about the volatility, the valuation, the economic uncertainty in China. And that’s why we think this ETF gives you better control.
Chuck Jaffe: There’s an interesting phenomenon going on now, because if we went back just a few years ago and we were talking about emerging markets, we were fundamentally talking about what folks would call the BRIC nations. You had Russia and China in there. That’s half of the BRIC. Well, Russia’s out because it’s not investable right now, because of Ukraine.
China’s out in this case by choice. Do you want to do it that way? If you’re looking for mostly exposure to India and Brazil, do you want to do it this way? You could go just get an India ETF, couldn’t you?
Todd Rosenbluth: You could. And obviously India has been one of the better-performing markets. Its weighting within these broader portfolios has risen as it’s performed well. But diversification remains paramount for many people, especially if you’re investing in an emerging market. Things could go wrong in India, for example. There could be political challenges, the economy could be slower. That’s why you want to spread that risk around to a dozen or so of these emerging market countries.
And that’s something we think you can do in a low-cost manner. You, of course, can look at single countries, but that single country could underperform just as easily as it outperformed in a prior year. So we think spreading that risk around makes a lot of sense.
Chuck Jaffe: I agree. I just don’t know that emerging markets … maybe it’s that label and maybe it needs to be changed. Or maybe the portfolio managers are broadening out and including more things when they’re taking things out. But again, it’s to be focused on those four nations and one of them completely uninvestable, one of them scares the bejesus out of people, which is why we have a fund like this one that excludes that one too.
So that’s an interesting time when you’ve got half of the one.
Todd Rosenbluth: That’s right. I mean, emerging markets have been underperforming U.S. equities for a couple of years. You’ve been better off having a U.S. home bias, but that won’t always be the case. And there are other emerging markets that are popping up. South Africa is one that we didn’t touch on earlier. We’ve seen other countries show economic growth in this environment, and you want to make sure that you have exposure to that within a broadly diversified portfolio.
And so U.S. equities have worked. We’ve seen investors want to add back in exposure to international and even emerging markets. But there are concerns about China. And we think using an ETF that allows you to target how much exposure you have to China by either complementing this with a broader EM portfolio, or if you wanted to take a more extreme role and only own this ETF as your emerging markets portfolio reduced China completely from the overall mix, that can make sense.
Chuck Jaffe: You are not necessarily a trend follower. Tom Lydon, VettaFi’s vice chairman, said that his roots in this fund are above its 200-day moving average. When you’re talking about something that can bring volatility to the portfolio, does that make it for you more of a potential trend-following play?
Todd Rosenbluth: We think it’s positive. This has been performing relatively well. And I think if we compare the trend line in the performance from a technical perspective toward China or even a more broadly diversified ETF like EEM that has exposure to, say, China — more than 20% — you’d see positive technical trends related to this ETF, and that’s a good sign. I’m a fundamental guy, and we think the valuations look more appealing outside of the Chinese market, and thus you may want to have more diversification toward other countries, but “the trend is your friend” is always a good thing to follow.
Chuck Jaffe: I love the idea of comparing this Ex-China fund to an emerging markets fund that includes China. And watching that portfolio doing a little overlay there will give you an idea of what’s the volatility being taken out. Also, what’s the profit potential, right?
Todd Rosenbluth: That’s right. So EEM is the iShares ETF that tracks the benchmark people are most familiar with. IEMG is the larger ETF from iShares tied to the space. Those two ETFs and XCEM you should certainly have on your radar, compare and contrast and decide if you want to combine these ETFs. One from iShares and one from Columbia in a portfolio. Or perhaps you want to go solely with that Columbia ETF.
Chuck Jaffe: And that Columbia ETF is XCEM. It’s the Columbia EM Core ex-China ETF, the ETF of the Week from Todd Rosenbluth at VettaFi. Todd Great stuff. I’ll talk to you again next week.
Todd Rosenbluth: See you next week, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. I am Chuck Jaffe. And you can learn all about my hourlong weekday podcasts by going to MoneyLifeShow.com or by searching wherever you find your favorite podcasts. If you want to learn more about investing in exchange traded funds, there’s no better place then VettaFi. They’ve got a great suite of tools there. It’s going to help you research funds, do those comparisons we were talking about and more. Check it out for yourself at VettaFi.com. They are on Twitter @Vetta_Fi. And Todd Rosenbluth, my guest. He’s their head of research and he’s on Twitter or X @ToddRosenbluth. The ETF of the Week is here for you every Thursday. So we’ll see you again next week and until then, happy investing everybody.
For more news, information, and analysis, visit VettaFi | ETF Trends.