{"id":87425,"date":"2016-03-30T14:30:44","date_gmt":"2016-03-30T18:30:44","guid":{"rendered":"http:\/\/countingpips.com\/?p=87425"},"modified":"2016-03-30T07:21:10","modified_gmt":"2016-03-30T11:21:10","slug":"three-tips-for-investing-in-emerging-markets","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/03\/three-tips-for-investing-in-emerging-markets\/","title":{"rendered":"Three Tips for Investing in Emerging Markets"},"content":{"rendered":"
March 30, 2016<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Three<\/p>\n

Having been a neglected asset class for some time, emerging market stocks are enjoying a healthy rebound so far in 2016.<\/p>\n

The story of how we got here is a familiar one.<\/p>\n

When developing stock markets got overbought, they became overvalued. As a result, nervous investors \u2013 mainly from the United States \u2013 dumped those assets.<\/p>\n

But the selloff led to a sharp 180-degree turn \u2013 emerging markets then traded at a 28% discount <\/em>to developed countries.<\/p>\n

Research Affiliates, founded by noted investor Rob Arnott, explains that emerging market stocks have only been cheaper than current levels six times.<\/p>

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Each of those periods sparked an average five-year return of 188%.<\/p>\n

That should grab any investor\u2019s attention.<\/p>\n

So what\u2019s the best way to invest in emerging stock markets?<\/p>\n

Based on my decades of experience as both an advisor and an investor, I\u2019ve compiled three quick tips to help you make sense of this market trend<\/a>.<\/p>\n

Tip #1: Do NOT Use Index Funds<\/h2>\n

I\u2019m not a fan of index funds in general\u2026 but especially when it comes to emerging markets.<\/p>\n

It\u2019s a sure-fire way to be unsuccessful.<\/p>\n

Why, you ask?<\/p>\n

First, because indices severely restrict your investable universe. And they\u2019re usually restricted to the most overbought and overvalued stocks.<\/p>\n

Case in point: The Institute of International Finance points out that only $7.5 trillion out of a total of $24.7 trillion in emerging market equities are covered by indices from MSCI and JPMorgan.<\/p>\n

The rest are simply ignored as if they don\u2019t exist. Yet, it\u2019s those ignored stocks that usually boast the best bargains and room for growth.<\/p>\n

Tip #2: Avoid the Closet Index Trackers<\/h2>\n

Even if you do avoid index funds directly, there\u2019s another problem: \u201cCloset trackers.\u201d<\/p>\n

These are fund managers who like playing it safe. They couldn\u2019t care less about outperforming the benchmark index for their shareholders.<\/p>\n

These managers have at least 50% of their funds in index stocks, so their funds will mimic the underlying index. Needless to say, that\u2019s not what you want.<\/p>\n

Worryingly, a study from the World Bank revealed that 20% of equity funds were index trackers or closet trackers.<\/p>\n

This is a complete waste of money from an investor\u2019s viewpoint. You\u2019re paying for active management, but you\u2019re not getting it.<\/p>\n

One example of a mutual fund company that usually goes off the beaten track and often invests in smaller companies is the Wasatch Funds<\/strong> (WGROX<\/a>).<\/p>\n

Though I do not own their emerging market fund, I do own their frontier markets fund \u2013 Wasatch<\/strong> Frontier<\/strong> Emerging<\/strong> Small<\/strong> Countries<\/strong> Fund<\/strong> (WAFMX<\/a>) \u2013 for exposure to the smaller frontier markets.<\/p>\n

Tip #3: Get Local Exposure<\/h2>\n

If you truly want exposure to developing markets, guess what? You\u2019ll need to own shares in local companies.<\/p>\n

And while it may seem like a clearer route to a profit, don\u2019t do what many U.S. advisors espouse and have your sole exposure through multinational companies. Yes\u2026 there are many great multinationals with huge emerging market businesses \u2013 a company like Colgate Palmolive Co. <\/strong>(CL<\/a>) comes to mind \u2013 they\u2019re not the best <\/em>way to gain exposure to developing markets\u2019 economic growth.<\/p>\n

I like to use this analogy when explaining this point to clients: Let\u2019s say a Japanese investor wanted exposure to the U.S. economy. His broker recommends Toyota Motors Corp. <\/strong>(TM<\/a>). After all, Toyota sells a lot of cars in the United States.<\/p>\n

Silly, right?<\/p>\n

Toyota shares aren\u2019t a good way to play the overall U.S. economy, as the stock only represents a very select fraction of market success. Neither is investing in emerging markets solely through multinationals.<\/p>\n

Investing in emerging local companies is the best way to profit from more specific foreign trends.<\/p>\n

There are all manner of resources available these days for researching foreign companies and stocks. It does take a bit of work, but the rewards can be well worth the time. Alternatively, you can diversify through an exchange-traded fund (ETF) and leave the work to proven, active<\/em> fund managers.<\/p>\n

Regardless of which route you prefer, now is a good time to build positions in emerging markets.<\/p>\n

Good investing,<\/p>\n

Tim Maverick<\/p>\n

The post Three Tips for Investing in Emerging Markets<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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By WallStreetDaily.com Having been a neglected asset class for some time, emerging market stocks are enjoying a healthy rebound so far in 2016. The story of how we got here is a familiar one. When developing stock markets got overbought, they became overvalued. As a result, nervous investors \u2013 mainly from the United States \u2013 […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-87425","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87425","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=87425"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87425\/revisions"}],"predecessor-version":[{"id":87428,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87425\/revisions\/87428"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=87425"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=87425"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=87425"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}