Emerging markets investing offers investors a really useful tool to get foreign diversification with potential upside. Of course, not all emerging markets ETFs are created equal, nor have emerging markets always delivered on their performance goals. Recognizing that, it can help to take a look at strategies with long term performance records in the space. The KraneShares MSCI Emerging Markets ex China Index ETF (KEMX ) presents one such case.
See more: Get Reduced Volatility China Exposure With China ETF KLIP
KEMX, which charges 24 basis points (bps) for its approach, launched in April 2019. The emerging markets ETF sets itself apart from other ETFs investing in the space with its approach to China. KEMX excludes China and instead leans into emerging markets like India and South Korea.
That may appeal to investors given some of the recent struggles facing the Chinese economy. While media headlines overstate the headwinds there, with the economy still set for a 5% growth rate, debt issues for local government still linger.
That’s where KEMX comes in. The emerging markets ETF invests in mid and large-cap stocks, weighting constituents by market cap. Over the last five years, the strategy has returned 42.3% per data from KraneShares. That has outpaced its underlying index, which returned 39.4% in cumulative performance. Those returns also outperform its ETF Database Category and Factset Segment averages.
Emerging markets could present an appealing opportunity set for investors especially as the U.S. economy slows. Domestic rate cuts, though anticipated for this year, remain elusive amid stubborn inflation. Foreign investing in emerging markets benefits from a whole different set of macrotrends like supply chain adjustments, “reshoring,” and growing middle classes in places like India.
For investors looking to diversify into emerging markets, KEMX’s approach could stand out. Avoiding China and leaning into other up and comers could offer a meaningful layer on of a core, domestic allocation.
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