A properly diversified portfolio should include businesses from all over the world. Valuation wise, stocks in developing countries are currently much cheaper than in North America. So in today’s post I’ll go over several emerging markets ETFs to consider adding to your portfolio.
VWO and IEMG
The Vanguard FTSE Emerging Markets ETF has a low management fee of 0.10% and over $100 billion of assets. It trades in the U.S. under the ticker (VWO) and in Canada under (VEE)
The iShares Core MSCI Emerging Markets ETF is another good option if you want to own some South Korean companies as well. The ticker is (IEMG) in the U.S. and (XEC) in Canada.
If you want to know more about the differences between VWO and IEMG you can watch my recent video here. I also discuss alternative EM funds that have a dividend or small cap tilt.
Emerging markets with or without China
China’s economy has slowed down, and many analysts are concerned about increasing regulations.
Do you know what happened to Alibaba founder Jack Ma after he criticized the central government?
Regular citizens are affected as well. Employees from the education and high tech sectors have seen the value of their stock holdings plummet, wiping out savings practically overnight.
This year alone, the Chinese government has implemented the following new rules.
- Ban tutoring companies from making profits.
- Restrict online video game usage to 3 hours a week for anyone under 18 years old.
- Increase regulation of celebrities, and their fans.
- Crackdown on technology companies.
As a result of increasing government intervention the Chinese stock market has way underperformed the S&P 500 lately.
International investors are left with 2 choices. Either this pull back in Chinese stocks represents an opportunity to buy companies on sale, OR China will forever be an environment associated with regulatory uncertainty and is not worth investing in.
As usual, it’s a good idea to consider the choice from a long term perspective. If you think the Chinese stock market will grow over the next 10 years then investing in a diversified emerging market ETF would be an appropriate choice. Chinese companies make up a very generous portion of VWO for example.
On the other hand, if you don’t want to invest in China, then other options exist. For example, (EMXC) is the iShares MSCI Emerging Markets ex China ETF. This fund gives you exposure to emerging markets excluding China.
Ether way, there is something for everyone. 🙂
My EM strategy moving forward
Personally I plan to increase my exposure of emerging market stocks by selling put options on VWO with a Delta of around -20%. I will build up my emerging market investment until it’s worth about 10% of my liquid portfolio.
Earlier this year I made the case for why investors should look at emerging markets. It’s because that’s where most of the economic growth will most likely come from in the future. The U.S. is great at consuming, but over the long run I’m looking at which country is great at producing.
Thankfully the barrier to invest globally is now lower than ever thanks to afordable trading commissions, and a variety of ETF options. 🙂
Random Useless Fact: