Choosing Emerging Market ETFs

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Includes: BIK, BKR, EEM, EWZ, FXI, PIN, RSX, VWO
by: Tom Lydon

Choices, choices, choices. Emerging market ETFs are no longer just broad, all-purpose plays. There are sector funds, single country funds and, yes, there are still the broad funds. What you choose to own, though, depends on you.

Greg Savage, managing director of iShares portfolio management group at BlackRock, commented on how “investors are looking for investment opportunities that access economic growth around different parts of the globe,” and that the main way to access the globe is to specifically target countries and regions with the highest growth and/or exposure to specific sectors, reports Sheryl Nance-Nash for Daily Finance.

An increasing number of ETF providers are throwing their hats into the emerging market ring, including Emerging Global Advisors, who are known for their pioneering emerging market sector funds, iShares and Market Vectors.

The potential for greater returns in the emerging markets translates to added risk, and exposure to even narrower, or niche, categories in the emerging market space can carry even more. Mike Halloran, vice president of market strategy for BPU Investment Management, cautions that “you should feel comfortable with the political and economic environment of the country you’re investing in.”

If you’re risk-averse, consider a broad ETF that gives exposure to several markets or a region. If you’re risk-tolerant, single-country funds can be an appealing option. Additionally, one may also invest in emerging market sovereign debt ETFs as part of a fixed-income strategy.

But dig under the hood of certain ETFs to ensure that you’re getting the exposure you want (and leaving out the exposure you don’t). For example, Market Vectors Russia (NYSEArca: RSX) has a heavy weighting in energy, while iShares MSCI BRIC (NYSEArca: BKF) holds significant amounts of financials and energy.

We’re not saying those things are bad or good; one person may feel comfortable with financial exposure, while energy exposure is a little too volatile for another person’s taste.

  • Vanguard Emerging Markets ETF (NYSEArca: VWO)
  • iShares MSCI Emerging Markets Index (NYSEArca: EEM)
  • iShares MSCI BRIC (NYSEArca: BKF)
  • SPDR S&P BRIC 40 ETF (NYSEArca: BIK)
  • iShares MSCI Brazil (NYSEArca: EWZ)
  • Market Vectors Russia (NYSEArca: RSX)
  • PowerShares India Portfolio (NYSEArca: PIN)
  • iShares FTSE/Xinhua China 25 Index Fund (NYSEArca: FXI)

Max Chen contributed to this article.