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There are at least two good reasons why most investors should consider
investing a portion of
their portfolios in emerging market stocks:
 | Emerging Market stocks have higher expected returns than similar non-emerging
market stocks (albeit with higher risk).
|
| Emerging Market stocks tend to have relatively low correlations with other asset
classes,
so including them in a portfolio should improve the
portfolio's risk/return characteristics. |
For more information on Emerging Markets, see
here.
There are several similar-seeming investment options
available. Which is best?
The funds are listed in rough order of our overall preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
| VictoryShares Emerging Markets Value
Momentum ETF (UEVM). E/R: 0.45%.
This Exchange-Traded Fund (ETF) tracks the Nasdaq Victory Emerging Market
Value Momentum Index. This index starts with the stocks in the
Nasdaq Emerging Large Mid Cap Index and scores them on both momentum and value measures. It weights value
and momentum scores equally and ranks all stocks by their combined measure.
It then takes the 25% of stocks with the highest combined score and weights
them by inverse volatility. This results in a portfolio with strong
exposures to the momentum, value, and low volatility factors.
This fund effectively invests in 50% emerging mkts value stocks and 50%
emerging mkts momentum stocks. Even though it isn't really "style pure," we think
that, as impure as it may be, it may be one of the best large cap emerging mkts funds.
|
| Invesco S&P Emerging Markets Momentum Portfolio ETF (EEMO). E/R:
0.29%. This fund tracks the S&P Momentum Emerging Plus LargeMidCap
Index of Emerging-Markets large-cap stocks which have been
exhibiting strong risk-adjusted price momentum over the past 12
months (excluding the most recent month). For more
information on momentum investing, see
here.
|
| DFA Emerging Mkts High Profitability ETF
(DEHP). E/R: 0.41%. This fund targets the
largest 90% of stocks in Emerging Mkts mkt countries. They then take
the most profitable 35% of those stocks and apply roughly market
weights to them.
|
| DFA Emerging Core Equity Market ETF (DFAE). E/R: 0.35%.
This fund invests in emerging mkt countries while emphasizing stocks with
lower market cap, lower relative price, and higher profitability. Even though it isn't really "style pure," we think
that, as impure as it may be, it is one of the best (mostly) large cap emerging mkts
fund for a retirement account.
|
| Avantis Emerging Markets Equity Fund (AVEEX). E/R: 0.33%. This
fund
buys emerging markets stocks, with a distinct "tilt" towards those that are
smaller, more valuey, and more profitable. As such, this isn't as
"style pure" as several of the other funds.
|
| Avantis Emerging Markets Equity ETF (AVEM). E/R: 0.33%. This ETF
buys emerging markets stocks, with a distinct "tilt" towards those that are
smaller, more valuey, and more profitable. As such, this isn't as
"style pure" as several of the other funds.
|
| AQR Emerging Multi-Style II Fund (QTELX). E/R: 0.70%.
This share class requires a minimum initial investment of $5,000,000 unless
you buy it within a 401(k) or through a fee-only financial advisor.
This fund effectively invests in 40% emerging mkts value stocks, 40%
emerging mkts momentum stocks, and 20% emerging mkts profitability
stocks. Even though it isn't really "style pure," we think
that, as impure as it may be, it may be the best large cap emerging mkts fund
for a retirement account.
|
| Invesco DWA Emerging Mkts Momentum ETF (PIE). E/R:
0.90%. This fund tracks the Dorsey Wright Emerging Markets Technical
Leaders Index of Emerging Mkts stocks exhibiting powerful relative strength
characteristics. For more
information on momentum investing, see
here.
|
| Vanguard FTSE Emerging Markets ETF (VWO). E/R: 0.08%. This ETF is a share class of
VEMAX below.
|
| Vanguard FTSE Emerging Markets Index Fund Admiral Shares (VEMAX).
E/R: 0.14%. This fund tracks the FTSE Emerging Markets All Cap China A
Inclusion Index.
|
| Fidelity Emerging Markets Index Fund (FPADX). E/R: 0.075%. This fund tracks the MSCI EMF Index of large cap emerging
markets stocks.
|
| SPDR Portfolio Emerging Markets ETF (SPEM). E/R: 0.07%. This ETF
tracks the S&P Emerging BMI Index.
|
| iShares Core MSCI Emerging Markets ETF (IEMG). E/R: 0.09%. This ETF tracks the MSCI
Emerging Markets Investable Market index.
|
| Schwab Emerging Markets Equity ETF (SCHE). E/R: 0.11%. This ETF
tracks the FTSE All-Emerging Index.
|
| BNY Mellon Emerging Markets Equity ETF (BKEM). E/R: 0.11%. This ETF
attempts to track the Morningstar Emerging Markets Large Cap Index
of large Emerging Markets companies.
|
| iShares MSCI Emerging Markets Minimum Volatility Index Fund (EEMV). E/R:
0.25%. This ETF tracks the MSCI Emerging Markets Minimum Volatility
Index of emerging mkts stocks which have exhibited relatively low volatility.
|
| DFA Emerging Markets Portfolio (DFEMX). E/R: 0.36%. This
fund invests in large-cap stocks (i.e., top 40% to 90% of market
capitalization) of 16 emerging market countries. Target country
allocations are approximately capitalization weighted in accordance with free
float market capitalizations.
We see no good reason to buy this fund, given the availability of the less
costly options above.
|
| iShares MSCI Emerging Markets Index Fund (EEM). E/R: 0.69%. This ETF tracks the MSCI EMF
index. We see no good reason to buy it in retirement accounts,
given the availability of less costly options above. |
| VictoryShares Emerging Markets Value
Momentum ETF (UEVM). E/R: 0.45%.
This Exchange-Traded Fund (ETF) tracks the Nasdaq Victory Emerging
Market Value Momentum Index. This index starts with the stocks in the
Nasdaq Emerging Large Mid Cap Index and scores them on both momentum and value measures.
It weights value and momentum scores equally and ranks all stocks by
their combined measure. It then takes the 25% of stocks with the
highest combined score and weights them by inverse volatility. This
results in a portfolio with strong exposures to the momentum, value,
and low volatility factors.
This fund effectively invests in 50% emerging mkts value stocks and 50%
emerging mkts momentum stocks. Even though it isn't really "style pure," we think
that, as impure as it may be, it may be one of the best large cap emerging mkts funds.
|
| Invesco S&P Emerging Markets Momentum Portfolio ETF (EEMO). E/R:
0.29%. This fund tracks the S&P Momentum Emerging Plus LargeMidCap
Index of Emerging-Markets large-cap stocks which have been
exhibiting strong risk-adjusted price momentum over the past 12
months (excluding the most recent month). For more
information on momentum investing, see
here.
|
| DFA Emerging Mkts High Profitability ETF
(DEHP). E/R: 0.41%. This fund targets the
largest 90% of stocks in Emerging Mkts mkt countries. They then take
the most profitable 35% of those stocks and apply roughly market
weights to them.
|
| DFA Emerging Core Equity Market ETF (DFAE). E/R: 0.35%.
This fund invests in emerging mkt countries while emphasizing stocks with
lower market cap, lower relative price, and higher profitability. Even though it isn't really "style pure," we think
that, as impure as it may be, it is one of the best (mostly) large cap emerging mkts
funds.
|
| Avantis Emerging Markets Equity ETF (AVEM). E/R: 0.33%. This ETF
buys emerging markets stocks, with a distinct "tilt" towards those
that are smaller, more valuey, and more profitable. As such,
this isn't as "style pure" as several of the other funds.
|
| AQR Emerging Multi-Style II Fund (QTELX). E/R: 0.70%.
This share class requires a minimum initial investment of $5,000,000 unless
you buy it within a 401(k) or through a fee-only financial advisor.
This fund effectively invests in 40% emerging mkts value stocks, 40%
emerging mkts momentum stocks, and 20% emerging mkts profitability
stocks. Even though it isn't really "style pure," we think
that, as impure as it may be, it may be the best large cap emerging mkts fund
for a taxable.
|
| Invesco DWA Emerging Mkts Momentum ETF (PIE). E/R:
0.90%. This fund tracks the Dorsey Wright Emerging Markets Technical
Leaders Index of Emerging Mkts stocks exhibiting powerful relative
strength characteristics. For more
information on momentum investing, see
here.
|
| Vanguard FTSE Emerging Markets Index ETF (VWO). E/R: 0.08%. This ETF
is a share class of VEMAX above. While ETFs tend to be more tax efficient
than conventional mutual funds, Vanguard ETFs are an exception — this ETF will be merely as tax efficient as VEMAX
(no more, no less), but with a lower expense ratio. The fact that VEMAX
has an ETF share class should make it somewhat more tax-efficient than it
otherwise would be.
|
| Vanguard FTSE Emerging Markets Index Fund Admiral Shares (VEMAX). E/R: 0.14%.
This
fund tracks the FTSE Emerging Markets All Cap China A Inclusion Index. The fact that this fund has an ETF
share class should make it somewhat more tax-efficient than it
otherwise would be.
|
| SPDR Portfolio Emerging Markets ETF (SPEM). E/R: 0.07%. This ETF
tracks the S&P Emerging BMI Index.
|
| iShares Core MSCI Emerging Markets ETF (IEMG). E/R: 0.09%. This ETF tracks the MSCI
Emerging Markets Investable Market index.
|
| Schwab Emerging Markets Equity ETF (SCHE). E/R: 0.11%. This ETF tracks the FTSE All-Emerging Index. For
more information on ETFs, see here.
|
| BNY Mellon Emerging Markets Equity ETF (BKEM). E/R: 0.11%. This ETF
attempts to track the Morningstar Emerging Markets Large Cap Index
of large Emerging Markets companies.
|
| iShares MSCI Emerging Markets Minimum Volatility Index Fund (EEMV). E/R:
0.25%. This ETF tracks the MSCI Emerging Markets Minimum Volatility
Index of emerging mkts stocks which have exhibited relatively low
volatility.
|
| iShares MSCI Emerging Markets Index Fund (EEM). E/R: 0.69%. This ETF tracks the MSCI EMF
index. As an ETF, this fund is expected to be
perfectly (capital gains) tax-efficient, unlike most non-ETFs. |
This web page contains the current opinions of Eric E. Haas at the time it is
written—and such opinions are subject to change
without notice. This web page is intended to serve two purposes:
| To educate the public; and |
| To provide disclosure of Mr. Haas' opinions to prospective clients.
We believe that prospective clients are well-served by being made aware of
what they are buying—and what they are buying is advice
that is based on these opinions. |
We believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us. |
