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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 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)
| DFA 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.
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| USAA Emerging Markets Value Momentum Blend ETF (UEVM). E/R: 0.45%.
This ETF tracks the MSCI Emerging Markets Value Momentum Blend Index. This
index starts with the stocks in the MSCI EMF 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 is a very valuey ETF
that also gives good momentum exposure.
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| Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE). E/R: 0.39%. 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.
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| Invesco FTSE RAFI Emerging Markets Portfolio (PXH). E/R: 0.50%. 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.
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| SA 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.
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| John 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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| USAA Emerging Markets Value Momentum Blend ETF (UEVM). E/R: 0.45%.
This ETF tracks the MSCI Emerging Markets Value Momentum Blend Index. This
index starts with the stocks in the MSCI EMF 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 is a very valuey ETF
that also gives good momentum exposure.
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| DFA 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.
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| Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE). E/R: 0.39%. 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.
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| Invesco FTSE RAFI Emerging Markets Portfolio (PXH). E/R: 0.50%. 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.
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| SA 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.
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| John 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:
| 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. |
