Cheap Exposure to Attractively Valued Emerging-Markets Stocks
Emerging-markets stocks are trading at lower valuations than U.S. stocks, despite their higher expected growth rates. This ETF offers a good way to own them.
IShares Core MSCI Emerging Markets ETF (IEMG) is one of the cheapest and best-diversified emerging-markets funds available. The exchange-traded fund's broad, market-cap-weighted portfolio effectively diversifies firm-specific risk, promotes low turnover, and accurately reflects active managers' opportunity set. However, it has considerable exposure to China, which is a source of risk that limits the fund's Morningstar Analyst Rating to Bronze.
The fund owns nearly 1,800 emerging-markets stocks of all sizes, covering 99% of the investable universe, and weights them by market capitalization. These holdings span 24 markets, including Taiwan and South Korea. Similar to its market-cap-weighted peers, China represents the fund's largest country weighting, at about 30% of the portfolio. This gives it significant exposure to the Chinese yuan, as well as local risks specific to the Chinese market. Investors may not be compensated for this risk, making such a large single-country allocation less than ideal.
Alex Bryan has a position in the following securities mentioned above: EEMV. Find out about Morningstar’s editorial policies.