Altruist Financial Advisors LLC

Emerging Markets Value Funds

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).
• 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 large value stocks will, in the long run and on average, tend to have higher risk-adjusted returns than large growth stocks.

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.

Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)

• DFA Emerging Markets Value Portfolio (DFEVX). E/R: 0.45%. 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. Within countries, company weighting is roughly proportional to its market capitalization. Rebalancing is only done with new money to minimize transaction fees.
• Avantis Emerging Markets Value ETF (AVES). E/R: 0.36%. This ETF invests in stocks of all market capitalizations in emerging mkts countries, focusing on stocks trading at lower valuations with higher profitability ratios.
• DFA Emerging Markets Value ETF (DFEV). E/R: 0.43%. This ETF 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. Within countries, company weighting is roughly proportional to its market capitalization.
• VictoryShares Emerging Markets Value Momentum ETF (UEVM). E/R: 0.45%. This 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.
• iShares MSCI Emerging Markets Dividend ETF (DVYE). E/R: 0.49%. This ETF tracks the Dow Jones Emerging Markets Select Dividend Index.
• Schwab Fundamental Emerging Markets Equity ETF (FNDE). E/R: 0.39%. This ETF tracks the RAFI Fundamental High Liquidity Emerging Markets Index (Net).
• Invesco 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.

Taxable Accounts

• Avantis Emerging Markets Value ETF (AVES). E/R: 0.36%. This ETF invests in stocks of all market capitalizations in emerging mkts countries, focusing on stocks trading at lower valuations with higher profitability ratios.
• DFA Emerging Markets Value ETF (DFEV). E/R: 0.43%. This ETF 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. Within countries, company weighting is roughly proportional to its market capitalization.
• VictoryShares Emerging Markets Value Momentum ETF (UEVM). E/R: 0.45%. This 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.
• iShares MSCI Emerging Markets Dividend ETF (DVYE). E/R: 0.49%. This ETF tracks the Dow Jones Emerging Markets Select Dividend Index.
• Schwab Fundamental Emerging Markets Equity ETF (FNDE). E/R: 0.39%. This ETF tracks the RAFI Fundamental High Liquidity Emerging Markets Index (Net).
• Invesco 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 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.