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moneysense.ca, 27/02/07
Investing in Emerging Markets
David Swensen classified emerging markets equity as one of the core asset classes in his book, Unconventional Success. It is easy to see why: emerging markets have low correlation with other asset classes and provide valuable diversification benefits while lowering the overall volatility of the portfolio.
If you are interested in adding emerging markets to your portfolio, you have the following ETF options:
- iShares MSCI Emerging Markets Index Fund (EEM) has been around for a few years and provides broad exposure to South Korea, Taiwan, Mexico, South Africa and the BRIC economies of Brazil, Russia, India and China. The MER at 0.75% is steep by ETF standards.
- Vanguard Emerging Markets ETF (VWO) tracks the MSCI Emerging Markets Select Index and is a recent competitor to EEM. The composition is similar but not the same as EEM but the fund is far cheaper with a MER of 0.30%.
- BLDRS Emerging Market 50 ADR Index Fund (ADRE) tracks the performance of a capitalization-weighted index of 50 emerging market based Depository Receipts. MER is 0.30%.
In my opinion, VWO is the better option because it is at least equally diversified and cheaper than the rest.
moneysense.ca, 27/02/07
CC:
I believe that EEM and VWO now track the same index. VWO used to be on a different index but this changed within the last two years. Good post, agree that emerging markets are an important consideration when determining asset allocation.
Anjo
I also like CBQ from Claymore … maybe not the exact definition of emerging markets, but Brazil, India, China and Russia make for an interesting growth mix
CMBR: We’ll have to disagree about the suitability of BRICs. I think that it is a passing fad.
I’m fairly new to the ETF market. In the Moneysense Couch Potato portfolio, they recommend a Canadian index, US index, GLOBAL index and Canadian bond index. Which ETF would you guys pick for the GLOBAL index?
FT
[...] Is this a buying opportunity for Emerging Markets ETFs, or for our indices as well? While this pullback is attractive, I’d be hesitant to buy on this drop. It could be a harbinger of things to come. I suspect there will be a relatively quick rebound, but I think that it’s prudent to wait and see if any other negative news comes out before diving in. Chinese stocks have had so much of a runup that there could be significant downside. Still, it’s worth keeping an eye on these markets and look for a good buying opportunity. [...]
Today’s pullback was worldwide. Pretty much every market index of significance around the globe dropped. For me, I’m sitting on a ton of cash and credit so I will wait and see if this is the start of the bear market that I’ve been waiting for… If so, then the trick will be trying to guess when the market hits bottom. We live in interesting times, folks!
Great post! I must have missed this one. I have you on my blog reader to read your updates, just need to go through your archives more thoroughly. Your blog is one of my favorites!
FT: I don’t have the reference with me, but I think the global index in the MoneySense Couch Potato portfolios is represented by XIN. XIN is the currency hedged version of the MSCI EAFE index.
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[...] simply holds the iShares MSCI Emerging Markets ETF (EEM), which in turn tracks the MSCI Emerging Markets Index. The total MER for XEM is 0.82%, which [...]
[...] a comment to an earlier post (see New iShares Emerging Market and World ETFs), Henry noted that the iShares MSCI Emerging Markets ETF (EEM) seemed to track the index better than the Vanguard Emerging Markets ETF (VWO). As you can see from [...]