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Emerging Markets Value 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.

Further, there is good reason to believe that value stocks will, in the long run and on average, tend to have higher risk-adjusted returns than growth stocks.

There are a few 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)

bulletDFA Emerging Markets Value Portfolio (DFEVX).  E/R: 0.55%.  This fund invests in stocks of established companies in thirteen emerging markets. Only stocks in the top three deciles of book-to-market ratios in each country are eligible for investment. Target country allocations are approximately capitalization weighted in accordance with free float market capitalizations, subject to a buying ceiling. Within countries, company weighting is roughly proportional to its market capitalization.  Rebalancing is only done with new money to minimize transaction fees.

bulletPowerShares FTSE RAFI Emerging Markets Portfolio (PXH).  E/R: 0.49%.  This ETF tracks the FTSE RAFI Emerging Index, designed to track the largest emerging markets stocks, as measured by four fundamental measures of firm size: book value, cash flow, sales and dividends.  This fund is not as well diversified nor as valuey as DFEVX.  For more information on ETFs, see here.

bulletSchwab Fundamental Emerging Markets Large Company Index ETF (FNDE).  E/R: 0.48%.  This ETF tracks the Russell Fundamental Emerging Markets Large Company Index, designed to track the largest emerging markets stocks, as measured by three fundamental measures of firm size: cash flow, sales and dividends.  This fund is not as well diversified nor as valuey as DFEVX.  For more information on ETFs, see here.

bulletSA Emerging Markets Value Fund (SAEMX).  E/R: 1.45%.  This fund, subadvised by DFA, invests in stocks of established companies in thirteen emerging markets. Only stocks in the top three deciles of book-to-market ratios in each country are eligible for investment. Target country allocations are approximately capitalization weighted in accordance with free float market capitalizations, subject to a buying ceiling. Within countries, company weighting is roughly proportional to its market capitalization.  Rebalancing is only done with new money to minimize transaction fees.

bulletJohn Hancock Funds II Emerging Markets Fund (JEVNX).  E/R: 1.07%.  This fund, subadvised by DFA, invests in stocks of established companies in thirteen emerging markets. Only stocks in the top three deciles of book-to-market ratios in each country are eligible for investment. Target country allocations are approximately capitalization weighted in accordance with free float market capitalizations, subject to a buying ceiling. Within countries, company weighting is roughly proportional to its market capitalization.  Rebalancing is only done with new money to minimize transaction fees.

Taxable Accounts

bulletDFA Emerging Markets Value Portfolio (DFEVX).  E/R: 0.55%.  This fund invests in stocks of established companies in thirteen emerging markets. Only stocks in the top three deciles of book-to-market ratios in each country are eligible for investment. Target country allocations are approximately capitalization weighted in accordance with free float market capitalizations, subject to a buying ceiling. Within countries, company weighting is roughly proportional to its market capitalization.  Rebalancing is only done with new money to minimize transaction fees.

bulletPowerShares FTSE RAFI Emerging Markets Portfolio (PXH).  E/R: 0.49%.  This ETF tracks the FTSE RAFI Emerging Index, designed to track the largest emerging markets stocks, as measured by four fundamental measures of firm size: book value, cash flow, sales and dividends.  This fund is not as well diversified nor as valuey as DFEVX.  For more information on ETFs, see here.

bulletSchwab Fundamental Emerging Markets Large Company Index ETF (FNDE).  E/R: 0.48%.  This ETF tracks the Russell Fundamental Emerging Markets Large Company Index, designed to track the largest emerging markets stocks, as measured by three fundamental measures of firm size: cash flow, sales and dividends.  This fund is not as well diversified nor as valuey as DFEVX.  For more information on ETFs, see here.

bulletSA Emerging Markets Value Fund (SAEMX).  E/R: 1.45%.  This fund, subadvised by DFA, invests in stocks of established companies in thirteen emerging markets. Only stocks in the top three deciles of book-to-market ratios in each country are eligible for investment. Target country allocations are approximately capitalization weighted in accordance with free float market capitalizations, subject to a buying ceiling. Within countries, company weighting is roughly proportional to its market capitalization.  Rebalancing is only done with new money to minimize transaction fees.

bulletJohn Hancock Funds II Emerging Markets Fund (JEVNX).  E/R: 1.07%.  This fund, subadvised by DFA, invests in stocks of established companies in thirteen emerging markets. Only stocks in the top three deciles of book-to-market ratios in each country are eligible for investment. Target country allocations are approximately capitalization weighted in accordance with free float market capitalizations, subject to a buying ceiling. Within countries, company weighting is roughly proportional to its market capitalization.  Rebalancing is only done with new money to minimize transaction fees.

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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:

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 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.

 

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