Which Emerging Market ETF is Right For You?

ETF

Emerging market exchange-traded funds are plenteous. These funds offer investors a broad range of sizes and types for investing in overseas markets. Looking through and comparing them can be time-consuming unless you have an idea of which offer the least risk and most potential for return on investment. Every fund is structured distinctly. There will be differences in the asset bases, the size of the fund, types of companies within their holdings, and market cap ratios. We’ve prepared a few tips to help you find the best options, along with a few recommended emerging market ETFs for consideration.

What’s attractive about emerging market ETFs?

Third-world countries are still in the process of developing their economies. While some may falter and fail, others have the potential to stabilize. The turnaround can come at a rapid pace. It could translate into good news if you place your bet on the corresponding emerging market ETF.

We checked to find out what analysts had to say about emerging market ETFs. According to Seeking Alpha, these ETFs are still in an early phase in their development, and they are just beginning to enter their growth stage. The potential for higher returns is higher, but so is the risk of losing your investment. Analysts take an interest in these emerging markets with an eye on the factors that impact economic growth and stability. This kind of activity is encouraging. It gives investors a reason to perk up and turn attention to thoughts of diversifying their portfolios with an investment in the non-direct ETFs.

Which is the right emerging market ETF?

One of the biggest challenges that investors face is choosing the right emerging market ETF. ETFs provide investors with a non-direct investment strategy. By the nature of the fund, the volatility and associated risks versus direct market investing in stocks are usually lower. The best options maintain a few characteristics to remember. They are low cost, liquid enough for uncomplicated buying and selling, they’re large enough for trading and require low fees. Keeping your eye out for emerging market ETFs that bear these similarities narrows the candidate list.

What are the best emerging market ETFs?

Market Watch offers insight into two of the most favorable ETFs in the emerging market class. Analysis of the two companies resonates with investors seeking more stability in funds with holdings in large and successful companies.

Emerging Global Shares EM Dividend High Income ETF (US: EMHD)

EMHD is an exchange-traded fund that maintains a diverse portfolio of emerging market stocks that are not included in other ETFs. Their eclectic blend of companies includes the Ford subsidiary company in Turkey called Ford Otomotiv Sanayi, Telecom Egypt, and Bangkok Expressway. A total of 50 of the highest yielding stocks are included in the portfolio of investments in an all-cap platform. Shares began trading in 2013.

Wisdom Tree Emerging Markets Equity ETF (DEM)

This exchange-traded fund is based on a fundamentally weighted index. It is composed of stocks from the Wisdom Tree Emerging Markets Dividend Index meeting two requirements. They are the highest yielding and all of them are dividend yielding. If you’re looking for the safety of a more liquid option for your investment you may want to consider DEM with a yield of 5.9% in dividends.DEM leans towards basic materials in its allocation. The two top holdings in this fund represent over ten percent of the portfolio, comprised of Russian oil and gas companies.

Vanguard FTSE Emerging Markets ETF (VWO)

VWO is a pick of US News for one of the best ETFs to invest in for 2020. It is the largest emerging market ETF currently with over $50 billion in assets. Impressively, over a quarter of the holdings of the fund are in financials with forty percent of the assets in China. These holdings make up one of the most liquid ETF for investors who are prone to short term investments with the option of trading. VWO is one of the least expensive options with fees of 0.1 percent annually. Total holdings represent more than 5,000 individual stocks for a fairly diverse portfolio.

iShares Core MSCI Emerging Markets ETF (EIMG)

US News’ second choice for the best-emerging markets EFT is IEMG. This fund falls in line closely behind VOW with an asset base of almost $50 billion. Although this fund owns approximately half of the portfolio stocks at 2,500 positions, it’s more geographically diversified. The fund’s allocations in China are a bit smaller with a greater division among sectors. Fifteen percent of IEMG’s top assets include holdings of Taiwan Semiconductor Manufacturing (TSM), Tencent Holdings (TCHEY), and the Alibaba Group (BABA). This could be a potential downside if the retail sector is in a downward trend. The expense ratio is small for the large fund at just 0.13 percent. The diversity of the fund can help to compensate for any downturns within some sectors of the market.

Final thoughts

Investing in emerging markets under the exchange-traded fund platform provides you with exposure to a sector that holds the potential for growth in the short term. This non-direct form of investment strategy enhances safety over investing directly in stocks of a particular company. If you’re interested in diversifying your portfolio while maintaining uncomplicated trading options, the four emerging market ETFs on our list might be worth your consideration. Each fund establishes a decently diverse portfolio with holdings in companies that provide you with exposure to several sectors in the market. The two largest funds are impressively diversified. Follow our tips for analyzing the variables and outside factors that could potentially impact the performance of your chosen ETF before investing. Each fund has its own set of rules, fee schedules, and system for dividend distributions, so it’s wise to be intimately familiar with the fine print. Investigate the distribution of sectors, size, and stability of companies that make up its holdings, and the performance of the stock for the main assets to get an idea of how well the fund is performing. Seek out the assistance of a financial advisor if you’re still not sure which emerging market ETF is the right choice for you.

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