Investing in companies based in emerging countries is becoming increasingly topical, partly because the potential performance is so attractive. It is possible to implement these investments through the direct purchase of securities, stocks and shares of selected companies, or through the purchase of ETFs. ETFs, specifically, are funds that aim to faithfully replicate the performance of stock, bond and commodity indices. The primary ETF that invests in developing countries is the Ishares MSCI Emerging Markets ETF.
What is the Ishares MSCI Emerging Markets ETF?
The Ishares MSCI Emerging Markets ETF is a fund that invests in equities focused on emerging markets. It is the oldest ETF among emerging markets and the largest in size. It is a physically replicated index ETF, and aims to replicate the performance of the MSCI Emerging Markets Index.
How it works
The Ishares MSCI Emerging Markets ETF invests in a range of stocks of companies listed in emerging markets, structuring the portfolio based on the companies’ stock market value. So, if a company has a higher stock market value than the others, it will have a directly proportional weighting in the ETF.
The ETF invests in a large number of securities from a wide range of sectors of which the main ones are: IT, finance, telecommunications, commodities, energy, industry and health. The top ten holdings represent approximately 24% of the ETF and the most important are:
- Samsung Electronics Co.
- Alibaba Group Holding LTD
- Tencent Holdings
- Taiwan Semiconductor Manufacturing (to date the one with the largest share)
- Meituan Class B
- Mediatek Inc
- Geographically, iShares MSCI Emerging Markets ETF focuses on, but not limited to, Asian countries. Specifically, the top states are: China, Taiwan, South Korea, India, Brazil, Saudi Arabia, Russia, and Mexico.
Quotation and Technical Analysis
ETF Ishares MSCI Emerging Markets has averaged a return of around 11% over the past 5 years.
During 2017, it touched 36.59% and then fell the following year to -15.11% before rising and stabilizing around 16% the following two years.
A very interesting fact, which confirms a general behavior of the markets, is that in 2020, the year of the beginning of the pandemic, many investors decided to invest in emerging markets, in order to try to avoid the reflection of the consequences of the pandemic to US and European companies. It is exactly the same kind of behavior that was adopted in 2007, following the subprime mortgage crisis in America.
The costs of the Ishares MSCI Emerging Markets ETF are absolutely affordable, as the synthetic expense ratio is between 0.14% and 0.55%. Comparing that to mutual fund fees of around 1%, it really seems like a low expense.
How to Invest in ETFs
One can invest in ETFs either by opening a securities account, i.e. by subscribing to a securities deposit at a bank, by contacting a financial advisor, or through the numerous online trading platforms currently available. One of the most popular brokers to date is eToro. eToro is a CySec authorized trading platform, it is quite young, but has already gained a huge reputation due to its intuitive structure and high standards on computer security.
Benefits and Risks of Investing: Is it worth it?
ETFs allow you to diversify your investment and, consequently, lower the risk of capital loss. In the case of the Ishares MSCI Emerging Markets ETF, this advantage is even more evident, as these companies are located in particular geographical and political contexts and would require considerable study and constant updating to be able to invest profitably in individual shares.
In conclusion, investing in Ishares MSCI Emerging Markets ETFs can represent a good opportunity, but one must constantly keep his antennae up to keep an eye on the scenarios of the countries involved.