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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:
 | Emerging Market stocks have higher expected returns than similar non-emerging
market stocks (albeit with higher risk).
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| Emerging 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.
Further, there are at least two good reasons why most investors should
consider investing a portion of
their portfolios in small cap stocks:
| Small-Cap stocks may have better long-term returns than
large-cap stocks.
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| Small-Cap stocks tend to have relatively low correlations with large-cap stocks,
so including them in an otherwise large-cap stock portfolio should improve the
portfolio's risk/return characteristics. |
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)
| DFA Emerging Markets Small Cap Portfolio (DEMSX). E/R: 0.59%. This
fund invests in the bottom 20%-40% of 16 emerging market countries.
Stocks of less than $25 million are excluded. Target country
allocations are approximately capitalization weighted in accordance with free
float market capitalizations. Rebalancing is only done with new money to minimize transaction fees.
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| SPDR S&P Emerging Markets Small Cap ETF (EWX). E/R: 0.65%.
This ETF tracks the S&P Emerging Market Small Cap < $2 Billion Index.
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| iShares MSCI Emerging Markets Small Cap Fund (EEMS). E/R: 0.70%. This ETF
tracks the MSCI EMF Small Cap index.
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| WisdomTree Emerging Markets SmallCap Dividend Fund (DGS). E/R: 0.58%.
This ETF attempts to track the WisdomTree Emerging Markets SmallCap Dividend
Index of emerging market small cap dividend-paying stocks. This index
begins with the 10% smallest (in market cap) stocks in the WisdomTree Emerging
Markets Dividend Index, and then weights them by total dividend payout.
We rated this lower than the iShares fund above because we expect DGS's
turnover to be higher during its periodic reconstitution -- we expect that
this may cause its internal transaction costs to be higher, more than
offsetting DGS's lower expense ratio. Further, DGS is apparently less
diversified than the iShares fund, including only dividend-paying stocks. |
| SPDR S&P Emerging Markets Small Cap ETF (EWX). E/R: 0.65%.
This ETF tracks the S&P Emerging Market Small Cap < $2 Billion Index.
We prefer it to EEMS because it is dramatically more liquid and slightly
less expensive.
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| iShares MSCI Emerging Markets Small Cap Fund (EEMS). E/R: 0.70%. This ETF
tracks the MSCI EMF Small Cap index.
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| WisdomTree Emerging Markets SmallCap Dividend Fund (DGS). E/R: 0.58%.
This ETF attempts to track the WisdomTree Emerging Markets SmallCap Dividend
Index of emerging market small cap dividend-paying stocks. This index
begins with the 10% smallest (in market cap) stocks in the WisdomTree Emerging
Markets Dividend Index, and then weights them by total dividend payout.
We rated this lower than the iShares fund above because we expect DGS's
turnover to be higher during its periodic reconstitution -- we expect that
this may cause its internal transaction costs to be higher, more than
offsetting DGS's lower expense ratio. Further, DGS is apparently less
diversified than the above funds, including only dividend-paying stocks. |
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 intended to serve two purposes:
| To educate the public; and |
| To 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 buying—and 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. |
