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Time to Shift from U.S. Stocks to Emerging Market ETFs?


After the impressive run in the domestic markets, advisors and investors are beginning to shift more money into emerging market equities and exchange traded funds.

Northern Trust’s chief investment strategist, Jim McDonald, has argued for easing up on U.S. stocks and moving capital into emerging-market equities, reports Jonathan Cheng for the Wall Street Journal.

The fund manager has raised his allocation of emerging market assets to 11% from 7% while lowering his exposure to U.S. stocks and corporate debt. [Two Low-Volatility ETFs for Emerging Markets]

“There are times to take money out of trades that have worked well, and this is one of those times,” McDonald said in the article.

Other market observers have also been making this move in light central bank moves and the extra liquidity sloshing around. [As Global Growth Falters, Consider Emerging Markets ETFs]

“Risk aversion has come down, and that’s definitely a positive for the emerging markets,” John Praveen, chief investment strategist for Prudential International Investment Advisers, said in the article.

Year-to-date, investors have funneled $23 billion into emerging market stock funds, with $9 billion added since August. In the week ended Oct. 19, the iShares MSCI Emerging Markets Fund (EEM) added $1 billion in assets, the iShares FTSE China 25 Fund (FXI) saw $662.7 million in new inflows and the iShares MSCI Brazil Fund (EWZ) accumulated $489.3 million, according to IndexUniverse.

Nevertheless, naysayers contend that it could still be too early for the emerging markets. For instance, John Higgins, senior markets economist for Capital Economics, said that investors should sit out at least another year and wait for Europe to sort out its problems.

Additionally, some have pointed to the emerging market stock P/E ratios, which are sitting around 13 times earnings, compared to U.S. shares at 14.8 times earnings, according to MSCI.

“We still don’t think it’s compelling enough,” Christian Thwaites, president and chief executive of Sentinel Investments, said.

For more information on the emerging markets, visit our emerging markets category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.