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Emerging Market ETF Ideas For 2018

ETF Professor

Emerging markets are delivering for investors in 2017. The widely followed MSCI Emerging Markets Index is up 33 percent this year, and two emerging markets exchange traded funds — the iShares Core MSCI Emerging Markets ETF (NYSE: IEMG) and the Vanguard FTSE Emerging Markets ETF (NYSE: VWO) — are among the top 10 asset-gathering ETFs.

Forecasts are in place for a solid year of economic growth in 2018 for developing economies, indicating the run in the aforementioned ETFs and others like them is not over.

Meanwhile, prospects for 2018 are strong. Action Economics, which provides macroeconomic forecasts for MarketScope Advisor, projects world economic growth to expand by 3.9 percent in 2018, up from an expected 3.7 percent in 2017,” CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth said in a Monday note. “While developed international markets will likely post average GDP growth [of] 2.3 percent in 2018, similar to expectations for 2017, emerging markets will likely see economic expansion to 4.9 percent in 2018, up from 4.6 percent in 2017.” 

A Basic Idea

VWO, the largest emerging markets ETF by assets, is a basic avenue to access emerging equities. The ETF is a favorite with investors due in part to its low fee. VWO charges 0.14 percent per year, or $14 on a $10,000 investment, making in less expensive than 90 percent of competing strategies and one of the cheapest emerging markets ETFs in the U.S. 

Chinese stocks account for nearly a third of VWO's lineup. The ETF holds over 4,700 stocks, a combined 27 percent of which hail from Taiwan and India.

Several of VWO's top 10 holdings are rated Buy by CFRA and the ETF “also is rated favorably for the above-average S&P Global Quality Rankings of its underlying holdings and its 0.14 percent expense ratio,” said Rosenbluth.

An Income Idea

The WisdomTree Emerging Markets SmallCap Dividend ETF (NYSE: DGS) is up 28 percent year-to-date, putting it well ahead of competing U.S. small-cap ETFs. The $1.5 billion DGS has a distribution yield of 5.4 percent.

DGS has a growth feel to it as the technology and consumer discretionary sectors combine for a third of the ETF's weight. Still, the ETF is often less volatile than U.S. small-cap benchmarks. Taiwan, China and South Africa combine for over 53 percent of the geographic exposure in DGS.

CFRA has Overweight ratings on VWO and DGS.

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Todd Shriber owns shares of VWO.

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