Interest in emerging market equities has grown rapidly over the years, as investors flock to this lucrative corner of the global market. In addition to providing diversification benefits, emerging market exposure also has the potential to produce uncorrelated returns for those willing to take on the higher level of risk. And while there are numerous ways investors can tap into this segment, investors still must choose which strategy they want to take: choose a broad-based fund that casts a wider net over the space or take advantage of targeted exposure through a country-specific ETF [see Single Country ETFs: Everything Investors Need To Know].
One particular fund that lends itself to answering the age old question of broad-based versus country-specific exposure is the BICK Index Fund (BICK, C+); this fund offers exposure to the largest companies domiciled in Brazil, India, China, and South Korea.
The chart below illustrates the differences between risk/return profiles among the biggest BICK country-specific ETFs and the broad-based BICK Index Fund (BICK). Note that the risk/return profile is defined by a fund’s 200-day volatility and trailing one-year return, while the respective annual dividend yield of each ETF is represented by the size of each bubble [see Asia-Centric ETFdb Portfolio]:
- BICK Index Fund (BICK, C+)
- MSCI Brazil Capped ETF (EWZ, B+)
- India Earnings Fund (EPI, B+)
- FTSE China 25 Index Fund (FXI, A-)
- MSCI South Korea Index Fund (EWY, C+)
The Bottom Line
It is important to note that the chart above is based on trailing returns, and as such, its compositions are subject to changes over time. While there is no universally right choice from the above ETFs, it is important for investors to take a close look under the hood of these products to determine which combination of risk and return is appropriate. For example, the broad-based BICK has the lowest volatility and has provided meaningful returns and yields over the trailing one-year period. On the other hand, the highly volatile India ETF (EPI) would be more appropriate for someone who is willing to take on more risk to capture higher returns.
Follow me on Twitter @DPylypczak.
[For more ETF analysis, make sure to sign up for our free ETF newsletter]
Disclosure: No positions at time of writing.