Searching for relative value when domestic equities are at or near their all time highs can be a lesson in futility, especially for investors that are beginning to feel the pressure. The pressure I'm talking about is performance anxiety, and anybody that has felt it knows that it's a powerful force. Many an article have been written about this type of psychology or crowd mentality, and this isn't another one of those articles. Rather, I would like to focus on areas of the market that aren't at all time highs, and could present great buying opportunities for those that are monitoring them closely and can act quickly.
I'm intrigued with the number of options that have come available in the form of ETFs and mutual funds that allow investors to gain exposure to emerging markets. More specifically, investors can now carve out an entire asset allocation model as a subset of their portfolio made up of virtually any asset class, market cap, or sector.
The reason I have been looking so closely at these products now is because near term price levels are beginning to present good relative value in comparison to the high flying domestic stock market. In an article I wrote recently entitled Interest Rates - Trend Change Or Buying Opportunity? I made the case for the opportunities in emerging market corporate bonds. Today, another fund I watch very closely, and even started to make small additions to-- the iShares Emerging Market Dividend Index Fund (DVYE)-- has started to present the type of relative value I look for.
A few simple reasons why I have started to average into a position is that it's hovering very close to its 200 Day SMA. This can be a great long term trend indicator, assuming the price stabilizes. In addition, there is good horizontal support at $51.00, and like the Wisdom Tree Emerging Market Fixed Income fund (EMCB), the yield is much more attractive than comparable U.S. companies. In fact, according to the iShares website, the current SEC Yield for is 6.64%, making it a great income enhancer for investors that can stomach the added volatility of emerging market equities. With nearly 9.5% off its most recent high, those investors looking for a great yield and the potential for price appreciation should give it some serious thought. However, with any equity position I own, I always use a stop loss or risk management tool so that even if the downside momentum carries on it wont significantly impact your portfolio.