Altruist Financial Advisors LLC
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Emerging Markets Value Funds

 

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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:

bulletEmerging Market stocks have higher expected returns than similar non-emerging market stocks (albeit with higher risk).
 
bulletEmerging Market stocks 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.

Further, there is good reason to believe that value stocks will, in the long run and on average, tend to have higher risk-adjusted returns than growth stocks.

There are a few similar-seeming investment options available.  Which is best?

All of the options discussed here will likely have somewhat similar performance and any of them will probably get the job done quite well.  You can't go far wrong choosing any of the options listed here.  The funds are listed in rough overall order of 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)

bulletDFA Emerging Markets Value Portfolio (DFEVX).  E/R: 0.61%.  This fund invests in stocks of established companies in thirteen emerging markets. Only stocks in the top three deciles of book-to-market ratios in each country are eligible for investment. Target country allocations are approximately capitalization weighted in accordance with free float market capitalizations, subject to a buying ceiling. Within countries, company weighting is roughly proportional to its market capitalization.  Rebalancing is only done with new money to minimize transaction fees.

bulletiShares Emerging Markets Value Index ETF (EVAL).  E/R: 0.49%.  This ETF tracks the MSCI Emerging Markets Value Index.  For more information on ETFs, see here.  This fund is not as well diversified nor as valuey as DFEVX.

Taxable Accounts

bulletDFA Emerging Markets Value Portfolio (DFEVX).  E/R: 0.61%.  This fund invests in stocks of established companies in thirteen emerging markets. Only stocks in the top three deciles of book-to-market ratios in each country are eligible for investment. Target country allocations are approximately capitalization weighted in accordance with free float market capitalizations, subject to a buying ceiling. Within countries, company weighting is roughly proportional to its market capitalization.  Rebalancing is only done with new money to minimize transaction fees.

bulletiShares Emerging Markets Value Index ETF (EVAL).  E/R: 0.49%.  This ETF tracks the MSCI Emerging Markets Value Index.  For more information on ETFs, see here.  This fund is not as valuey as DFEVX.  As an ETF, it is expected to be perfectly capital gains tax efficient (something that can't be said for DFEVX above).  However, it is difficult to recommend it when it is so difficult to transact its shares (i.e., it is so illiquid).  Further, it is both less valuey and less diversified than the above fund.

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 for educational purposes only — 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.

 

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