How I Invest in Emerging Markets
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A small (5%) part of my portfolio is the emerging market asset class. I admit, this is not a dividend stock but it does fit into my overall asset allocation strategy. I want diversification with the opportunity to achieve some strong portfolio returns. In effect, I take on extra risk for the hope of enhanced returns.As I browse around the web, I often come across questions to investment experts about investing in China or India or Brazil or a number of other countries that at the time are considered to be “emerging”. The question is always asking if it is wise to invest directly in that market. If my opinion were asked on how to answer those questions I would undoubtedly tell these investor not to invest in any of them individually. The risks are too high.
Instead, I would steer them towards an index fund or ETF which helps spread the risk across multiple emerging markets, relieving the investor of choosing (read: guessing) which of those emerging markets will succeed and which will not. Let’s face it, some of these markets are politically and/or socially unstable which can lead to a wild stock market ride that no matter how smart you are you cannot really call. Take that guesswork away and buy an index fund.
Two Emerging Market Index Fund Options
My personal choice for an index fund and the one that I hold in my portfolio is the Vanguard Emerging Markets Stock ETF (VWO). I use this fund because of its low expense ratio (0.27%).
If you are really tied to dividend investing, then there is an ETF option through WisdomTree that focus on the emerging market area with a focus on dividend yield.
7 Comments on this post
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D Ho said:
Hi, I like VWO, but I bought CWO.TO. It’s description says it hedges against the CDN currency and holdes 100% VWO.
“Hedging currency exposure to reduce the impact of fluctuations in exchange rates on the Claymore Broad Emerging Markets ETF is intended to reduce the direct exposure to non-Canadian dollar currency risk for unitholders of such fund.”
0.65% mgmt fee. What do you think?
October 14th, 2009 at 12:35 pm -
Manshu said:
Risk in some cases is just the fear of unknown. ETFs or Index Funds are a good option for most people looking at diversifying though. I am not sure about these two options, but there are a lot of options that you can choose from, if you are looking emerging countries.
October 14th, 2009 at 5:34 pm -
FB @ FabulouslyBroke.com said:
This is perfect!
I am about to invest (next year that is) in emerging markets. I wanted to stay away from individual stocks, and having a lead on what some good indexes to buy is a great.
October 17th, 2009 at 11:05 am -
Maxime said:
Correct me if I am wrong, but the hedge against the american dollar serves nothing because all assets in VWO are not hedged against the currency of their respective country. Thus CWO.to is a bet for emerging markets and against the american dollars (and in favor of the Canadian one). Given that nowadays, the US$ is moving against the global stock market, this hedge does nothing but to increase the volatility of the underlying CWO.to stock.
November 10th, 2009 at 1:36 pm
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