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Emerging Markets 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 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)

bulletVictoryShares 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.

bulletInvesco 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.

bulletDFA 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.

bulletDFA 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.

bulletAvantis 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.

bulletAvantis 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.

bulletAQR 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.

bulletInvesco 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.

bulletVanguard FTSE Emerging Markets ETF (VWO).  E/R: 0.08%.  This ETF is a share class of VEMAX below.

bulletVanguard 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.

bulletFidelity Emerging Markets Index Fund (FPADX).  E/R: 0.075%.  This fund tracks the MSCI EMF Index of large cap emerging markets stocks.

bulletSPDR Portfolio Emerging Markets ETF (SPEM).  E/R: 0.07%.  This ETF tracks the S&P Emerging BMI Index.
 
bulletiShares Core MSCI Emerging Markets ETF (IEMG).  E/R: 0.09%.  This ETF tracks the MSCI Emerging Markets Investable Market index.
 
bulletSchwab Emerging Markets Equity ETF (SCHE).  E/R: 0.11%.  This ETF tracks the FTSE All-Emerging Index.

bulletBNY 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.

bulletiShares 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.

bulletDFA 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.

bulletiShares 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.

Taxable Accounts

bulletVictoryShares 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.

bulletInvesco 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.

bulletDFA 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.

bulletDFA 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.

bulletAvantis 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.

bulletAQR 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.

bulletInvesco 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.

bulletVanguard 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.

bulletVanguard 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.

bulletSPDR Portfolio Emerging Markets ETF (SPEM).  E/R: 0.07%.  This ETF tracks the S&P Emerging BMI Index.
 
bulletiShares Core MSCI Emerging Markets ETF (IEMG).  E/R: 0.09%.  This ETF tracks the MSCI Emerging Markets Investable Market index.
 
bulletSchwab Emerging Markets Equity ETF (SCHE).  E/R: 0.11%.  This ETF tracks the FTSE All-Emerging Index. For more information on ETFs, see here.

bulletBNY 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.

bulletiShares 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.

bulletiShares 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.

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This web page contains the current opinions of Eric E. Haas at the time it is writtenand such opinions are subject to change without notice.  This web page is intended to serve two purposes:

bulletTo educate the public; and
bulletTo 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 buyingand 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.

 

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