We all know about the two major emerging market ETFs iShares MSCI Emerging Markets (EEM) and Vanguard Emerging Markets ETF (VWO) that track the MSCI Emerging Markets Index. But there are plenty of other ways to get exposure to developing countries and in funds that have been outperforming them for the last three months.
No two ways about it: forecasts for emerging market growth in the coming years are roundly bullish. The International Monetary Fund (IMF) calculates that China will grow 10%, 7.7% in India and 4% in Mexico. In emerging markets overall, a growth rate of 6% is projected. In contrast, the IMF projects that U.S. economic growth will be 2.7% this year, 1% in the eurozone and 1.8% for Japan.
However, 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.”
Because of the promise these markets offer, many investors have flocked two the two biggest emerging market funds – VWO and EEM, which are up 3.1% and 2.1% in the last three months, respectively. But there are many other worthy ones that you may want to have on your radar, too.
- Claymore/BNY Mellon Frontier Markets (FRN): Frontier markets are a notch below “emerging.” They generally have less established industries and infrastructure and there plenty of room left for growth. Investors who want more risk than emerging markets offer might consider frontier markets instead. FRN has 45 holdings and has an expense ratio of 0.65%. Top country allocations include: Chile, 28.7%; Egypt, 14.60%; Colombia, 10.8%; and Poland, 10.7%. Top sector allocations include: financials, 42.7%; energy, 13.1%; utilities, 13%; and telecommunication services, 10.9%. It’s up 7.3% in the last three months.
- iShares Emerging Markets Eastern Europe Index Fund (ESR) tries to reflect the performance results of the MSCI Emerging Markets Eastern Europe Index. The fund has 49 holdings and has an expense ratio of 0.72%. Countries in the fund include Russian Federation, 73.6%; Poland, 14.9%; Hungary, 6.8%; Czech Republic, 4.8%; and Ireland, 0.04%. Top sector allocations include: energy, 45.8%; banks, 22.4%; materials, 13.5%; and telecommunication services, 10.9%. It’s up 4.1% in the last three months.
- EGS Dow Jones Emerging Markets Titans (EEG) tries to reflect the performance results of the Dow Jones Emerging Markets Titans Composite Index, which is a stock market index made up of a sample of 100 Emerging Market companies that Dow Jones Indexes finds to be leading companies in each of the 10 industrial sectors across the developing world. The fund has 83 holdings and has an expense ratio of 0.75%. Top country allocations include: China, 23%; Brazil, 25.5%; Russia, 13.8%; and India, 12.6%. It’s up 6.3% in the last three months.
- GlobalShares FTSE Emerging Markets Fund (GSR) tries to reflect the performance results of the equity index called the FTSE Emerging Markets Index. The fund has 362 holdings and an expense ratio of 0.39%. Top country allocations include: Brazil, 19.2%; Hong Kong, 18%; India, 11%; South Africa, 10.1%; and Taiwan, 10%. It’s up 4.9% in the last three months.
- Schwab Emerging Equity Markets ETF (SCHE) tries to reflect the performance results of the approximately 740-stock FTSE All Emerging Index. This fund is one of the broader emerging market funds around, offering diversified exposure to large- and mid-cap companies in more than 20 emerging markets. SCHE has 486 holdings and an expense ratio of 0.35%. Regional allocations include: Asia Emerging 38.5%; Emerging Market, 38.5%; Latin America, 26.7%; Asia developed, 12.2%; Europe Emerging, 12.1%; Africa, 10.5%; and Africa/Middle East, 10.5%. Top sector allocations include: financials, 24.9%; materials, 17.1%; energy, 15.3%; and industrials, 10.1%. It’s up 6.1% in the last three months.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of VWO and EEM.