• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / ETFs

How to Play Red-Hot Emerging Markets

If you can stick with emerging markets in the face of gut-wrenching volatility, it's hard to go wrong.
By NICHOLAS VARDY
Mar 07, 2012 | 11:00 AM EST
Stocks quotes in this article: VWO, EEM, RSX, EWX, BLK

Emerging markets don't get a lot of play in the U.S. financial media. But that hasn't kept U.S. investors from piling into this red-hot asset class in 2012.

Barron's just reported a set of figures that is almost too extreme to believe, even for a global bull like me. Investment management firm BlackRock (BLK) recently reported that $7.9 billion of the $9 billion that investors invested into equity exchange-traded funds around the world during February headed into emerging-markets ETFs. That's a whopping $8.77 out of every new $10 invested. That's the strongest start ever in terms of asset gathering for emerging markets.

In the U.S., almost all this money has gone into the Vanguard MSCI Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets Index Fund (EEM), both of which are near the top of the list in terms of asset growth for U.S. ETFs.

Early investors have been rewarded so far. Despite a sharp 3.3% selloff Tuesday, emerging-market ETFs are up 11.75% for the year. Some have done even better. The BRIC markets -- Brazil, Russia, India and China -- have all outperformed the MSCI Emerging Market Index this year. The Russian market leads the way with a 17% gain in Market Vectors TR Russia ETF (RSX).

But as any old hand will tell you, emerging markets are either feast or famine. As impressive as short-term gains can be, they can disappear virtually overnight. That's what makes the asset class so hard to hold on to.

That said, if you can stick with emerging markets in the face of gut-wrenching volatility, it's hard to go wrong. Over the past 10 years, emerging markets have returned roughly 15% per annum -- trouncing the S&P 500's anemic low single-digit rise.

That's why I have a constant 12% weighting in emerging markets for my clients, through thick and thin.

But I also have a strategy whereby I tweak these returns even more.

I do that by investing 8% of my clients' assets in VWO because the management fees are cheaper than for EEM, and 4% in an emerging markets small-cap index through the SPDR S&P Emerging Markets Small Cap ETF (EWX). That's the way I capture the small-cap effect in emerging markets.

As the former manager of a top-performing emerging-market fund, I can tell you that you'd be very hard pressed to find any active emerging-markets fund manager who could outperform this asset allocation over the long term.

Stick to this strategy and you'll be amply rewarded.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Vardy was long VWO, EEM and EWX.

TAGS: Investing | Global Equity | ETFs | Funds | Emerging Markets | Markets

More from ETFs

Here's How I'm Approaching the Popular TLT Treasury Bond ETF

Bob Byrne
Mar 29, 2023 8:30 AM EDT

The thing is, this ETF could break either way based on where it is at present.

Are You Chomping at the BITC for a Direct Exposure Bitcoin ETF?

Mark Abssy
Mar 28, 2023 12:27 PM EDT

Let's take a close look at the Bitwise Bitcoin Strategy Optimum Roll ETF, its exposure to bitcoin, and ... Contango.

Trading the Index ETFs? Here's What You Need to Know Now

Bob Byrne
Mar 28, 2023 9:00 AM EDT

While QQQ bulls may be frustrated, they still get the benefit of the doubt. The SPY and IWM are another story.

Traders Continue to Disbelieve What the Fed Says It Will Do

Bob Byrne
Mar 27, 2023 7:32 AM EDT

Despite the central bank's insistence that it won't cut rates, the market is betting rates will be lower by the end of the year.

Regional Bank ETF Hits a New Low as Bears Growl at the Sector

Bruce Kamich
Mar 24, 2023 8:52 AM EDT

The KRE is reflecting the worries about its holdings, such as Western Alliance Bancorporation.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 04:00 PM EDT CHRIS VERSACE

    AAP Podcast: This Solar Company Is a Head-Turner

    Listen to my interview with Brian Roth, CEO of sol...
  • 01:56 PM EDT PETER TCHIR

    Very Cautious

    I am very cautious here. I don't like how the c...
  • 08:58 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How to Adjust Your Trading Style as Market Conditi...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login