Buy emerging markets for the growth, not the commodities

Tech, finance dominate MSCI index ETFs

Jan 23, 2018 @ 2:54 pm

By John Waggoner

If you're putting clients into emerging-market ETFs to diversify away from the U.S. markets, you should think about whether your emerging-market fund actually does that.

One point to consider: The two largest sectors in the Standard & Poor's 500 stock index are technology and financial services. Those are the two largest sectors in the MSCI Emerging Markets Index as well. In fact, 27% of the index is technology, versus about 21% for the S&P 500.

The FANG stocks (Facebook, Amazon, Netflix and Google) have led technology, contributing about 18% of the S&P 500's gain last year. But the ANTS stocks (Alibaba, Naspers, Tencent and Samsung) have led emerging markets, contributing 43% to the index's gains in 2017, Edward Kerschner, chief portfolio strategist for Columbia Threadneedle Investments, said in an interview at the Inside ETFs conference. The MSCI index, incidentally, has more than 800 holdings.

A common misperception about emerging-market stocks is that they are tightly correlated with natural resources and commodities. But the correlation between emerging-market stocks and the Commodity Research Bureau index of commodity prices peaked at 81% in 2011, Mr. Kerschner said. Today, technology and finance are far more important to emerging markets.

The driving force behind emerging markets, however, is the growth of the middle class in the Far East, particularly China and India. In 2000, only about 4% of the world's middle class was in emerging markets, Mr. Kerschner said, with about 1% each in India and China. But the size of China's middle class is expected to overtake that of the U.S. by 2020, and India will pass the U.S. a year later.

Furthermore, India and China's demographics favor growth. India, for example, has the youngest median age of any major country, at 27. China follows at 37, while the U.S. median is 38 and Europe is 43.

"This is the U.S. postwar baby boom on steroids," Mr. Kerschner said.

(More: How to invest in frontier markets)

0
Comments

What do you think?

View comments

Recommended for you

Managing editor Christina Nelson and senior columnist Mark Schoeff discuss why title reform won't be as "simple and elegant" as some observers hope.

Video Spotlight

Recommended Video

Channels

Latest news & opinion

UBS shrinks recruiting costs in 2017, boosts adviser pay

Both trends reflect the firm's shift away from recruiting in favor of increasing the compensation of existing brokers.

Wells Fargo Advisors now under investigation by Galvin

Massachusetts securities regulator cites DOL fiduciary rule when discussing probe that will focus on investors moved into higher-fee accounts, 401(k) rollovers.

Tax law: How to get the pass-through deduction by reducing taxable income

Advisers are only eligible for the full 20% deduction if their income is less than $157,000 for singles and $315,000 for married couples.

How to design a 401(k) plan that's lawsuit-proof

High fees are a red flag, but prudence is the ultimate key to defeating a claim, according to advisers and attorneys.

Why Amazon is moving into finance, and what it means for advisers

While the company is only exploring a banking venture for now, some experts believe it is inevitable that Amazon will eventually turn its attention to financial advice of some sort.

X

Hi! Glad you're here and we hope you like all the great work we do here at arjuna-design. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting arjuna-design.com? It'll help us continue to serve you.

Yes, show me how to whitelist arjuna-design.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Last News

tr price capital appreciation fund how much can i put in a sep ira where to buy turbotax 2014 irs form ssa-1099 ferrari cars price in usa largest mutual funds by aum hecm reverse mortgages medicare income threshold fidelity index funds list t rowe price calculator how much is turbotax state metlife stable value fund fact sheet top rated mutual funds for retirement why roth ira is better than 401k how much is a charizard card worth fidelity mutual funds no minimum investment certified fiduciary and investment risk specialist dividend capital diversified property fund inc t rowe price instl mid cap equity gr best dividend stocks for the long term vanguard prime money market fund ticker td bank savings account interest rates mutual of america 2045 retirement fund vanguard bond funds ratings schwab equity award center reynolds blue chip growth t rowe price spectrum international schwab large cap growth etf ira withdrawal and redeposit best mlp mutual funds roth ira conversion distribution rules at&t stable value fund charles schwab managed account high yield debt funds