The dollar is among this year’s worst-performing major currencies. With the U.S. Dollar Index down more than 9% year-to-date, emerging markets stocks and exchange traded funds are benefiting. For example, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), the largest emerging markets ETF by assets, is up more than 25% year-to-date.
VWO is also one of the least expensive emerging markets ETFs. The fund owes its popularity, in part, to an annual fee of just 0.14%. That is the equivalent of $14 on a $10,000 investment, making VWO cheaper than 90% of competing strategies, 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.
“The U.S. currency’s longest losing streak in more than six years helped whip up demand for emerging-market assets last week,” reports Dani Burger for Bloomberg. “Investors added $978 million to the Vanguard FTSE emerging markets exchange traded fund over the past five days, the most in nearly five years, according to data compiled by Bloomberg.”
That continues a torrid pace of asset gathering this year for VWO. Year-to-date, investors have added $7.54 billion in new assets to VWO, a total surpassed by just eight other ETFs. In the third quarter, only four ETFs have added more new assets than VWO.
“Emerging market equities typically struggle in the face of a rapidly rising dollar and so conversely have benefited as this year’s consensus view for U.S. dollar weakens, along with evaporating expectations of a rise in U.S. interest rates,” Andrew Lapthorne, head of quantitative strategy at Societe Generale SA, wrote in a note to clients Monday, reports Bloomberg.
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VWO holds over 4,600 stocks. China accounts for over 29% of the ETF’s weight while Taiwan and India combine for almost 28%. Overall, 24 emerging economies are represented in the ETF.
Although emerging markets exchange traded funds are among this year’s most prolific asset gatherers in the U.S., some market observers argue that emerging markets equities are under-owned by big investors and that the asset class has more room to rally.
For more information on the ETF market, visit our ETF performance reports category.
Tom Lydon’s clients own shares of VWO.