Investing in emerging markets 401k
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The views and strategies described may not be suitable for all investors. The summary and full prospectuses contain this and other information about the mutual fund or ETF and should be read carefully before investing. Morgan Funds and J. Morgan Asset Management representative. Whether you're looking for a broadly diversified index fund or more targeted exposure to a region or country, BlackRock has many different options to choose from.
What are the different types of emerging market equity funds? Once a niche asset, EM equity funds have steadily evolved to include different areas of focus and accommodate various investment styles. For many investors, the decision starts with whether to take an active or an indexed approach to investing in EM equities. Active EM equity funds.
These funds draw on market expertise and stock research to identify equities that offer potential for above-market returns. Proponents of active investing note that the inefficiencies of EM offer advantages to stock pickers who can spot them while sidestepping risks. One advantage of ETFs is low fees. Global region- or country-specific funds.
While many funds shop the globe for EM equities that best fit their objectives, others home in on specific regions or individual countries. Most individual investors, whether using active or ETF strategies, tend to get their EM exposure via more diversified portfolios to help mitigate risk. That said, regional funds and country-specific funds or ETFs are ways for investors to act on a specific market view or target the parts of the world that interest them most.
As with any mutual fund or ETF, EM funds can be further broken out by investment style value or growth and market capitalization. How do BlackRock emerging market equity funds compare to others? Emerging market ETFs make it possible to tap into the diversification and performance benefits of EM in the way that best suits your needs.
In addition to actively managed emerging market mutual funds and broadly diversified ETFs, we offer a range of solutions, including funds that seek to reduce risk, mitigate currency risk and pinpoint specific markets. The world of EMs is constantly in flux. One constant is BlackRock's commitment to providing investors with EM expertise, across many different market cycles, regions and industries. What are some risks associated with emerging market equity funds?
As part of a long-term strategy, EM equity funds offer investors the potential for greater returns than they might get if they invest exclusively in developed markets. Of course, where there's the possibility of additional return, there's the possibility of additional risk. EM equity funds may be prone to more volatility than funds that focus on developed countries.
These markets are typically smaller and often more vulnerable to political shifts, commodity price swings and changes in monetary policy, among other risks. Many EM funds also carry currency risk — that is, the value of their holdings vary not just by increasing or decreasing security prices, but by the value of their currencies relative to the dollar.
It's important to weigh the pros and cons of investing in an EM equity fund that hedges currency risk, versus investing in one that offers currency exposure. For example, some countries, such as Poland and Hungary, are considered emerging because they are undergoing political transition.
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Investors concerned about volatility may want to consider minimum volatility funds, which potentially can smooth out the ups and downs of EM investing. Tailor your EM portfolio around countries or regions. The EM landscape is changing: Saudi Arabia, Argentina and China A shares have entered the index, but counterintuitively it is getting more concentrated despite the new entrants.
One potential solution? Consider carving out China as a standalone allocation through an emerging markets ex-China strategy. More generally, investors can consider adopting a country-focused approach in their international portfolios as I discussed in greater detail in February. Concentrated risk exposures, low correlations across EM, and high return dispersion suggested EMs are well suited for such an approach.
Consider a broad-based exposure, but manage political event risk. Investors may want to consider a differentiated approach for tactical and strategic trading using broad EM exposures, making tactical trades around Federal Reserve meetings or geopolitical events. EM debt looks attractive — with a current yield of 4.
So far in , more than thirty central banks have cut rates, with the Fed and the European Central Bank messaging that further accommodation might be needed. Whether EMs come back in favor this week or next year, we believe most investors should consider some allocation over the long term to this important asset class.
And ETFs can offer the flexibility to implement that allocation through a range of applications. Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses.
Indexes are un-managed and one cannot invest directly in an index. Past performance does not guarantee future results. Funds that concentrate investments in specific industries, sectors, markets or asset classes may under-perform or be more volatile than other industries, sectors, markets or asset classes and than the general securities market. Fixed income risks include interest-rate and credit risk.
Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments.
The Freedom Funds two years ago set up a separate emerging markets component with 15 percent of the non-U. But critics have concerns beyond the immediate headlines. When Northern Trust surveyed 97 institutional managers in mid-December, it found fears of a looming bubble in that sector. For its part, Vanguard Group continues to keep its emerging markets component safely snuggled within the broader international portfolio, believing that the diversification will help control volatility, a spokeswoman said.
By contrast, Hess recommends just 10 percent. She writes regularly about finance, health care, and business ethics.
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