Emerging markets are taking off in 2017. The
What's elevating these far-off equities?
For one, credit the weakening
There are other drivers, too. Chinese technology companies, for instance, have erupted this year, with e-commerce plays
The good news: Most of these drivers should still have some gas in the tank. Here are five exchange-traded funds to harness the resurgent growth in emerging markets. Each ETF offers a slightly different approach. Pick the one that's right for your portfolio.
iShares Core MSCI Emerging Markets ETF
But first the similarities. Both funds provide exposure to about two dozen countries, with Chinese holdings approaching 30% of each fund's weight, as well as double-digit positions in Taiwanese and South Korean stocks. And assets under management are in the same ballpark for both funds - $38.2 billion for IEMG, which is about $1.4 billion more than EEM.
So why IEMG over EEM?
The most obvious leg up is cost. IEMG's annual expense ratio of 0.14% is roughly one-fifth the cost of EEM and its 0.72% charge. IEMG expenses include a 1-basis-point fee waiver. (A basis point is one-hundredth of a percentage point.)
IEMG also casts a wider net. The ETF tracks the MSCI Emerging Markets Investable Market Index, which covers "approximately 99% of the free float-adjusted market capitalization in each country," whereas EEM's benchmark index only covers about 85%. Thus, IEMG sports 1,881 holdings versus EEM's 851. And while both have the same top holdings -
Vanguard FTSE Emerging Markets ETF
Investors who want to cover a spectacularly wide swath of the emerging world without compromising on cost could consider the
The VWO's benchmark, the FTSE Emerging Markets All Cap China A Inclusion Index, includes a few differences that set this Vanguard fund apart from iShares' popular competing funds.
First, there's breadth. VWO covers much more of the investible emerging world, with the fund holding 4,655 stocks at present.
Second, there's
Finally, there's
iShares Edge MSCI Minimum Volatility Emerging Markets ETF
Those who are intrigued by the growth prospects of emerging markets but are less tolerant of the risk involved in venturing outside the
From a geographical standpoint, EEMV isn't terribly different from IEMG and EEM. Its top weight is in Chinese stocks, which make up 24% of the fund.
And as
However, that outperformance in down markets came at the cost of underperformance during boom times for emerging markets, so EEMV makes the most sense as a diversification tool when emerging markets look particularly at-risk.
SPDR S&P Emerging Markets Dividend ETF
Emerging-market stocks are often considered a growth play, and the mediocre 2% yields offered by the likes of IEMG and EEMV don't dispel that notion. However, investors can find above-average income in emerging markets, too.
The
EDIV diverts from the typical geographic formula, relegating
But the "secret" behind EDIV's dividend heft can be found in the sector weightings. Whereas many emerging-markets funds load up on information technology and financials (EEM weights these at 27% and 23%, respectively), EDIV loads up on more traditionally income-friendly businesses. While financials are still a big part of the mix at 22%, tech is somewhat muted at 16%, and energy, consumer staples and telecoms all enjoy high-single-digit weights. Top holdings include the likes of
The companies help fuel a nearly 4% dividend yield - albeit on a payout that fluctuates heavily from quarter to quarter due to its holdings' distribution schedules.
iShares J.P. Morgan EM Local Currency Bond ETF
The rip-roaring year for emerging markets isn't isolated to equities. Bonds are also enjoying quite the renaissance. The iShares J.P. Morgan EM Local Currency Bond ETF provides exposure to bond issues across several emerging markets - a riskier proposition on its face than investing in developed countries with better credit ratings, which helps explain the high yield. But despite its emerging-markets exposure, LEMB isn't particularly high-risk.
For one, LEMB's portfolio is spread across 156 issues spanning 17 countries, with
Meanwhile, the bond portfolio boasts an average weighted maturity of just more than seven years, putting it squarely in "medium-term" territory. And nearly three-quarters of the fund is Standard & Poor's BBB-equivalent or better (read: investment-grade), so LEMB isn't going all-in on junk debt to prop up its high yield.
LEMB also provides a good illustration of one of the ways the weaker dollar comes into play in emerging markets. This fund - whose holdings are denominated in local currencies that benefit from a slumping greenback - has run more than 14% higher year-to-date. Sister fund iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB), which invests in
* The yield for this ETF represents the so-called SEC Yield, which reflects the interest earned after deducting fund expenses for the most recent 30-day period. SEC Yield is a standard measure for bond funds.
Kyle Woodley is a Senior Investing Editor at Kiplinger.