This article was originally published on ETF Trends.com.
Investors remain committed to emerging markets exchange traded funds. Inflows to ETFs, such as the iShares Core MSCI Emerging Markets ETF (IEMG) and the iShares MSCI Emerging Markets ETF (EEM) , confirm as much.
IEMG debuted just over five years ago as the low-cost alternative to EEM. With investors increasingly prioritizing fees in the ETF evaluation process, IEMG’s status as a cost-effective avenue to emerging markets stocks has helped the fund grow at a blistering pace. To start 2018, IEMG and EEM are among the top 10 asset-gathering ETFs.
To be precise, IEMG had added $2.73 billion in new assets this year as of Jan. 29 th , a total surpassed by just two other ETFs. Last year, IEMG saw $16.57 billion of inflows, good for fourth-best among all US-listed ETFs.
Year-to-date, investors have added $2.1 billion to EEM, good for the seventh-best total among all US-listed ETFs.
Emerging markets are enjoying improved fundamentals thanks to corporate earnings improving as economic growth rebounds and strengthening currencies against the U.S. dollar on the back of improved economic outlooks.
China is usually the largest country in diversified emerging markets ETFs, such EEM, IEMG and the Vanguard FTSE Emerging Markets ETF (VWO) . Due to massive inflows this year, IEMG is now the second-largest emerging markets ETF behind VWO. In addition to China, markets such as Brazil and India are driving upside for developing world equities.
Brazil’s central bank has not hiked interest rates since last year. Brazilian stocks have rallied this year and banks in Latin America’s largest economy appear inexpensive.
When comparing global central bank monetary policies, most developed countries have heavily relied on quantitative easing and low interest rates to bolster their economies, with some, notably the U.S. and the United Kingdom, already eyeing tighter monetary policies to obviate a potentially overheating economy. Meanwhile, many emerging market central banks have more room to run with their easing policies, which may continue to support their local debt securities.
The recent weakness in the U.S. dollar and stronger EM currencies have helped bolster demand for emerging market assets, including bonds. Those themes are benefiting ETFs, such as the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB).
EMB tracks the J.P. Morgan EMBI Global Core Index, a market-cap-weighted index. Potential investors should note that since it is a cap-weighted index, countries with greater debt will have a larger position in the portfolio. EMB is now the world’s largest emerging markets bond fund, ETF or mutual fund.
Year-to-date, investors have added over $2 billion to EMB.
For more information on the developing economies, visit our emerging markets category.
Tom Lydon's clients own shares of VWO.
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