ETF for Emerging Markets: New Economies Can Diversify Your Portfolio

What are emerging markets?

An emerging market is another term for a nation with an economy that’s still developing. In contrast to more developed economies in Europe, the U.S., and parts of Asia these economies are young and have the potential to grow at higher rates than mature economies.

When financial experts talk about emerging markets, they’re often referring to the BRIC nations (Brazil, Russia, India, and China) as well as nations such as Mexico, Taiwan, South Africa, Malaysia, and Turkey.

Why invest in emerging markets?

Many of these countries are big suppliers of natural resources that are necessary in manufacturing, including petroleum, wood and non-precious metal, such as nickel, which is necessary for smartphones and other consumer electronics.

The emerging market potential for growth is pretty big, because these economies are young.  Some estimates say as much as 70% of global growth will be driven by emerging market economies in the next few years.

Up & Coming ETF: What’s in the Fund?

*The numbers above reflect the percentage of stocks from each country in the fund.

  • 29% China
  • 16% Taiwan
  • 12% India,
  • 8% Brazil
  • 8% South Africa.  

Countries in this ETF include the so-called BRIC nations of Brazil, Russia, India, and China. The fund also includes Mexico, Taiwan, South Africa, Malaysia, and Turkey, among others.

Roughly one third of the fund’s holdings are in China. But other top countries include Taiwan, India, Brazil and South Africa. The 4,518 stocks are likely for companies you’ve never heard of, but include the Agricultural Bank of China, Mexico’s multi-national building materials company Cemex, and Brazil’s Petroleo Brasileiro, a petroleum company.

Read the full list of companies included in this ETF.

What are the risks?

The MCSI Emerging Market Index tracks the performance of companies in emerging economies, has only recently begun to recover from steep losses that began in 2014.

As opposed to companies in developed nations, companies in emerging economies face more risks from things like political instability, currency fluctuation, unpredictable inflation, and differences in legal and regulatory policies.

Because they supply raw materials to manufacturers, emerging market economies tend to be dependent on the economic situations of the nations that manufacture, such as China, or that purchase lots of manufactured goods, such as the U.S.

Developing nations can suffer when the larger countries they supply experience recessions or slower growth.

Key takeaways:

  • Investing in an emerging market ETF can help you diversify your portfolio with international stocks.
  • Emerging market economies have the potential to grow faster than those in developed nations.
  • The risks are higher because the nations are less developed.






Author:
Jeremy Quittner is the financial writer for Stash.



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