In recent years, investors around the world have searched everywhere for the best mixture of safety and return; given the lower-return environment of late, lower inflation, lower interest rates, and therefore reduced yields, much of the conversation has again switched to emerging markets.
A number of exchange traded funds (ETFs) have popped up to meet this investor demand.
Options such as the Vanguard Emerging Markets Stock Index Fund (NYSE:VWO) provide investors with exposure to stocks of emerging markets around the world. The fund specifically notes that it has investments in Brazil, Russia, India, Taiwan, and China.
While the underlying securities in an emerging market ETF may be more volatile than those in developed countries, it can be gathered that the longer-term upside for such a fund may be superior to one focused on stocks traded on the North American or European exchanges due to the risk/reward present in emerging markets.
Additional risks of investing in such a fund, while many are limited due to diversification across a number of unique markets, include increased currency and geopolitical risks not typically associated with similar stocks traded in developed markets.
Given the vast number of stocks traded in North America alone, investors looking to pick stocks in emerging markets would likely have far too much homework to do to gain a comfort level with a given pool of investments.
The advantage of choosing an emerging market ETF, like Vanguard’s fund listed earlier, is that a lot of the guesswork is taken out of the equation, and investors have the largest and most liquid stocks available to them in a diversified pool of emerging markets globally.
