Volatility Dips in Emerging Markets Stocks, ETFs

Historically, emerging markets stocks and ETFs are among the most volatile in the world, but that volatility is decreasing in a big way for investors.

At least that is the case for the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), the largest ETF tracking developing world equities.

ETF investors also threw money into overseas markets where valuations appear cheaper relative to the loftier prices in the U.S. – U.S. markets are trading at forward price-to-earnings of around 18 times, compared to historical averages of 15 times. Year-to-date, VWO has seen inflows of $8 billion, ranking it among this year’s top 10 asset-gathering ETFs.

“Expected price swings in the Vanguard FTSE Emerging Markets exchange-traded fund, the biggest of its kind with about $62 billion in assets, have fallen to an unprecedented 10.1 percent compared with a five-year average of 18.6 percent. That follows a 26 percent gain for the ETF this year as investors poured $8 billion into the fund,” reports Sid Verma for Bloomberg.

VWO is one of the least expensive emerging markets ETF with an annual fee of 0.14%, or $14 on a $10,000 investment, making it less expensive than 90% of competing funds, according to Vanguard data.

The weaker dollar has been helping emerging markets assets this year and many bond traders believe the Federal Reserve will not raise interest rates next month and it is possible the Fed will not do so again this year.