I am trying to make a portfolio for emerging markets

Question

Hi there,

I am trying to build a portfolio for emerging markets.So far I narrowed my options to two cases:
1) 100% EMKT with 0.69% fee!!!;
2) 50% VGE with 0.48% fee and 50% Asia with 0.67% fee

Asia has done pretty well in the past but does not have the rest of the world, that is why I reckon I need to combin eit with VGE. Beside EMKT has a pretty low market cap compare to the other two? Do you have any opinion?

Answer

Hi Armin.

Choosing ETFs will always be a personal decision at the end of the day.

But if I was going to pick emerging markets, I’d probably go with the one which is the broadest and has the lowest fee.  Personally, I would rather bet on emerging markets as a whole rather than specific Asian countries.  But others will prefer just Asia and that’s fine.

The reason EMKT is more expensive is likely because it is not just a plain index fund.  They are actively managing the portfolio based on qualities that the companies are showing – value, momentum, small, quality – so that is more work for the fund manager.  There are also far less companies in this fund vs something like VGE (4700 companies vs like 200)

So it depends how confident you are on the ‘factor’ strategy of EMKT, or whether you’d like to just bet on emerging markets as a whole.

All the best,
Dave

Answer

When building a portfolio focused on emerging markets, it’s important to consider a few key factors such as diversification, fees, and the specific regions you’re interested in investing in. Based on your options, here’s a breakdown to help you evaluate:

1) Investing 100% in EMKT with a 0.69% fee:
   – This option provides a straightforward approach by investing in a single ETF. The higher fee might be a concern, but it’s crucial to consider what the ETF offers in terms of exposure and past performance. If EMKT has a lower market cap as you mentioned, it might be less diversified compared to larger ETFs, potentially offering higher growth opportunities but also higher risk.

2) Splitting your investment 50% in VGE with a 0.48% fee and 50% in an Asia-focused ETF with a 0.67% fee:
   – This approach allows for broader diversification, not only across different companies but also across different regions within the emerging markets. VGE offers exposure to over 1,000 companies in various countries, enhancing your portfolio’s diversification. Combining VGE with an Asia-specific ETF can be a strategic move if you believe in the growth potential of Asian markets specifically, alongside other emerging markets.

The decision between these options should align with your investment goals, risk tolerance, and belief in the potential of specific regions. Diversification across different countries and sectors can help mitigate risk, and combining ETFs like VGE and an Asia-focused ETF could provide a balanced exposure to both broader emerging markets and the specific growth potential of Asian economies.

In terms of fees, while lower fees are generally preferable as they eat less into your returns over time, the difference in fees between your options is relatively small. The key would be to weigh the potential for higher returns against the cost of higher fees.

At Pearler, we focus on helping investors like you make informed decisions by providing access to a wide range of ETFs, including those focused on emerging markets. You can explore various ETFs, compare their fees, market cap, and performance history directly on our platform, making it easier to build a portfolio that suits your investment strategy and goals.

You can find out more about this topic here: Emerging Market Etfs Vs Thematic Etfs

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

ASIA is perhaps more established and already successful asian companies, so it may not be exactly the exposure you are after. (Not saying bad idea, just check it is what you want).
Some emerging countries are harder to buy shares in as a foreign entity and that can lead to higher management fees. NDIA (Indian nifty 50) and CNEW (China new economies) have .69% fees for single country exposure.
(Personally I exited my CNEW position when tensions were rising and moved to NDIA for my emerging market exposure. Not saying that was the most profitable, but I felt de-risked).

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Armin

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Dave Gow - Strong Money Australia

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