Best Alternative ETFs to Hedge Growing Emerging Market Concerns
This article was originally published on ETFTrends.com.
Some of the world's largest money managers are concerned that President Donald Trump could escalate his trade stance and throw the emerging markets into greater turmoil. Nevertheless, investors who concerned about further risks ahead may look to alternative exchange traded funds that take a bearish stance on these international markets.
John Normand, JPMorgan Chase & Co.’s head of cross-asset fundamental strategy, warned that the president could double down on his trade strategy to distract people from domestic legal and political concerns, Bloomberg reports.
“The motive behind Trump’s actions is sometimes hard to understand, but looking tough to the world is something that goes well with his America First policy and bodes well to his constituency,” Pablo Goldberg, a money manager at BlackRock Inc., told Bloomberg.
The Trump administration recently placed sanctions on countries from Venezuela to Turkey, intensified trade barriers between China and jumped into the heated land reform debate in South Africa.
"I fear the contagion risk to real economic activity," Chris Diaz, a money manager at Janus Capital Management, told Bloomberg citing Trump’s measures on China and Turkey. "EM was already under some pressure due to the Fed removing liquidity, rising rates and some idiosyncratic issues. Then Trump is exacerbating the situation."
The rising uncertainty has weighed on the emerging markets. Over the past three months, the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares Core MSCI Emerging Markets ETF (IEMG) , the two most popular and largest EM-related ETFs on the market, dipped 6.5% and 6.4%, respectively. In contrast, the S&P 500 increased 5.6% over the same period.
Alternatively, investors who were wary of further pullbacks in the emerging markets can capitalized on the decline with inverse or bearish ETF plays. For instance, the ProShares Short MSCI Emerging Markets (EUM) takes the inverse or -100% daily performance of the MSCI Emerging Markets Index. The ProShares UltraShort MSCI Emerging Markets (EEV) follows the -2x or -200% daily performance of the Emerging Market Index. Additionally, the Direxion Daily Emerging Markets Bear 3x Shares (EDZ) tracks the -3x or -300% performance of the benchmark.
For more information on the developing economies, visit our emerging markets category.
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