An Emerging Markets ETF For The Thrifty Investor

There is no shortage of talk pertaining to the resurgence of emerging markets stocks this year and that resurgence is taking place without much help from Chinese stocks. The largest U.S.-listed China exchange trade fund of any stripe along with the largest ETF tracking mainland Chinese stocks, or A-shares, are off an average of 10.3 percent year-to-date.

China's laggard status could explain why investors have been reluctant to dip their toes back into emerging markets waters. Year-to-date, the Vanguard FTSE Emerging Markets ETF VWO and the iShares MSCI Emerging Markets ETF EEM, the two largest ETFs by assets tracking developing economies, have lost $658.7 million and nearly $81 million in assets, respectively.

Investors are likely tired of hearing about the necessity for patience with emerging markets stocks, but a case can be made this asset class is one of a small number that are lobbing value that has not been seen in several years. 

The iShares Core MSCI Emerging Markets ETF IEMG can help with the patience required issue for emerging markets investors. In a simple way, IEMG can be viewed as the less expensive alternative to EEM as the former charges just 0.16 percent per year, a fraction of the 0.69 percent charged by EEM.

And speaking of inexpensive...

“Emerging markets stocks have seen declines in relative valuations over the last year, and are well below historical norms. Investors looking to increase their broad EM allocations could consider a broad stock fund or a broad stock minimum volatility fund,” said BlackRock in a recent note. “And among EM economies, valuations in Taiwan, Russia and China are each significantly well below their historical averages.” 

China and Taiwan are IEMG's largest and third-largest geographic weights, combining for just over 36 percent of the ETF's weight. Russian stocks represent nearly 3.7 percent of IEMG's lineup.

When IEMG debuted in October 2012, the thought was the ETF was intended for cost-conscious, buy-and-hold retail investors. With over $10 billion in assets under management, it is clear IEMG has some institutional fans and has probably absorbed some of the capital bled by EEM over the past several years.

“The Federal Reserve’s dovish stance on interest rates has taken some air out of the U.S. dollar relative to other currencies. For countries with large current account deficits, a weakening dollar can provide relief both in the cost of financing and in trade. We see this potentially benefiting Brazil, Indonesia, Turkey, South Africa and India,” adds BlackRock.