An Alternative Way to Invest in Emerging Markets

Investing in overseas markets is often seen as risky. This series on the top 20 largest exchange-traded funds (ETFs) already has covered one useful fund for diversifying with foreign markets, but today we’ll discuss an alternative you may find more appealing — the iShares MSCI Emerging Markets ETF (EEM).

EEM’s holdings are based on an index that follows not simply emerging market companies, but narrows that list to large- and mid-cap companies specifically. This focus means EEM doesn’t include as many potentially risky smaller companies as the Vanguard FTSE Emerging Markets ETF (VWO) does. EEM has more than 800 different positions in its portfolio and has an inclination towards long-term growth.

At a 6% loss for the year, EEM’s 2014 performance was not impressive, but that can be explained by the overall tone of overseas markets at the time. This year, the fund already has recovered much of that loss, rising 2.83%.

In terms of assets, EEM manages $32.7 billion. Plus, its 2.22% dividend yield offers additional appeal. With a 0.68% expense ratio, this isn’t the cheapest fund to own, but it is not a deal breaker either.

This fund’s holdings are heavily weighted toward publicly traded companies in China. It also has large positions in South Korea and Taiwan, among others, and includes less-tapped markets such as Chile and the Philippines.

EEM’s sector weightings lean towards financial services, 28.34%; technology, 18.49%; and consumer discretionary, 9.04%. EEM invests 18.04% of its assets in its largest 10 positions. They include Samsung Electronics Ltd. (SSNLF), 3.50%; Taiwan Semiconductor Manufacturing Company (TSM), 2.94%; Tencent Holdings Ltd. (TCTZF), 2.18%; China Mobile Ltd. (CHLKF), 2.14%; and China Construction Bank Corporation (CICHF), 1.52%.

Emerging markets have had some major setbacks recently, but they seem to be improving this year compared to domestic markets. For those in need of a global fund that focuses on larger companies, iShares MSCI Emerging Markets ETF (EEM) could be a solid way to fill that niche.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.