Emerging Markets ETF

One of the most popular investments in recent years is in electronically traded funds. However, even more recently many investors are looking at something called emerging markets ETF. This type of investment is really quite interesting in concept but both emerging markets and electronically traded funds need to be understood.

Emerging Markets
Emerging markets, in theory, are pretty easy to understand. They are economies in countries around the world that are either just emerging onto the global scene or are undergoing some form of economic reform. Most often emerging markets are from Eastern Europe, Asia and even in Latin America. One of the facts that is truly amazing about the concept of emerging markets is that some of the world’s leading economies are still lumped in with emerging markets. One such country is China that has a huge economy but is undergoing the above mentioned economic reforms. Many people find this difficult to believe that a country with as big a presence in global economics like China can be categorized with countries from Latin America that are just barely emerging onto the global market.

Electronically Traded Funds
A basic definition of an electronically traded fund (ETF) would be a security which is intended to track either a commodity or an index and interestingly they experience price fluctuations throughout the day as they are traded (bought and sold). Although they are traded like stock, they are not valued like stocks that are calculated only once daily. The main benefit of owning ETFs is that your portfolio gains diversification but also provides you the capability to buy as much or little as you want and to even buy on a margin or sell short if that is what you desire. There is a commission to pay your broker when buying or selling which impacts the net gains which should be taken into account when issuing a buy or sell order.

Pros and Cons of Emerging Markets ETF
As in any investment product, there are pros and cons in emerging markets ETF investments. First of all, it should be said that this particular type of ETF will almost offer higher yields than conventional domestic ETFs. But on the other hand, the emerging market has not proven to be stable yet so the underlying assets are seen as highly volatile. For this reason, most investors view their emerging markets ETF strategy as a long term investment. Understandably, those emerging markets need time to prove their presence in the global economy and then stabilize to some extent. It is suggested that the wisest move when investing in this type of ETF is to find a fund that has underlying assets from a number of countries. In other words, spread the risk.

Once both the concepts of electronically traded funds and emerging markets are understood it is easier to find emerging markets ETFs to invest in. Some are structured around a variety of market capitalization strategies which means that you will be able to find small, mid and large cap emerging markets ETFs. Keep in mind that small cap ETFs are the riskiest and that risk is magnified by the emerging nature of the countries assets (securities) within the fund. On the other hand, a large cap emerging market ETF can provide a safer investment but will take longer to show significant profit. Perhaps this is the best solution since the investor is already looking to hold onto the fund for longer periods anyway. In the end, for the investor who wishes to take on a bit of risk to potentially realize higher gains, an emerging markets ETF should be considered.

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