Investing in Emerging Markets
While investing in the developed world may be more comfortable for some, emerging markets are where the dramatic growth has been in recent months and years. The average emerging market mutual fund has climbed 31.3% annually during the past three years, according to Lipper Inc., and emerging market exchange-traded funds, ETFs, show similar performances.
Along with such growth comes greater risk, however, which includes currency fluctuations and lack of liquidity. In volatile markets, bid/offer spreads for emerging market ETFs can be very wide. Then, too, there can be political instability. In addition, emerging markets can be sensitive to U.S. interest rates.
Among ETFs, one of the top performers has been BLDRS Emerging Markets 50 ADR Index Fund, ADRE. The fund is up over 30% since the beginning of 2006. It tracks the Bank of New York Emerging Markets 50 ADR Index, which is comprised of 50 of the most traded, large cap companies in emerging markets, including Taiwan Semiconductor, America Movil and China Mobile. (ADRs or American depositary receipts are receipts for the shares of a foreign-based corporation held by a U.S. bank. ADRs are traded on major U.S. exchanges).
Funds not restricted to ADRs offer access to companies not traded on U.S. exchanges. The MSCI Emerging Markets fund with the symbol EEM has gained more than 30% this year. It has more than doubled since its debut in May 2003; during this same period, the S&P 500 Index of large cap U.S. stocks has risen by about 49%. EEM is diversified among various industry groups with assets invested in such companies as Gasprom and Samsung Electronics.
Funds not restricted to ADRs offer access to companies not traded on U.S. exchanges. The MSCI Emerging Markets fund with the symbol EEM has gained more than 30% this year. It has more than doubled since its debut in May 2003; during this same period, the S&P 500 Index of large cap U.S. stocks has risen by about 49%. EEM is diversified among various industry groups with assets invested in such companies as Gasprom and Samsung Electronics.
Another top performer boasting gains of over 30% in 2006 is Vanguard Emerging Markets Stock ETF, VWO, which tracks the MSCI Emerging Markets Select Index. With stocks in 18 countries in Europe, Asia, Africa and Latin America, its top holdings include Gasprom, Samsung Electronics and America Movil.
For more detailed information about these and other ETFs, see www.etfconnect.com. Since ETFs are traded like stocks, quotes and charts for ETFs can be found at any website offering stock information.