Move over, rate cuts; China is back in the headlines. After more than a year of tepid growth and weak sentiment, the Chinese government has announced major monetary and fiscal stimulus. While China investing has remaining a solid opportunity for diversification and upside all year, that has helped reignite interest.
Billionaire investor David Tepper, for one, has touted China as a significant opportunity. With the rate cut narrative likely done for the year, it may be worth examining how a China rebound may benefit an important segment of funds in emerging markets ETFs.
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Emerging markets ETFs provide an appealing combination of long term investing opportunity and diversification. Given not only how expensive U.S. stocks are, but also the concentration risk they currently pose, that could see investors add some emerging markets positions. Emerging markets are seeing, for example, growing middle classes that could offer more than just materials or energy investing opportunities.
What’s more, with the year’s end approaching, emerging markets could appeal for those tax-loss harvesting. By selling off securities at a loss, investors can offset some tax losses, and reinvest those assets elsewhere. Emerging markets ETFs can help diversify at the same time.
The Avantis Emerging Markets Equity ETF (AVEM ) presents one option therein. AVEM includes not only Chinese firms but also names from Taiwan, India, and other key emerging markets. The strategy actively invests in emerging markets, which can set it apart from other emerging markets ETFs. That flexibility can help if big macro events impact those markets. At the same time, active managers can often leverage research and analyze firms with more granularity. AVEM emphasizes smaller firms rather than large cap names.
That approach has helped AVEM return 17.35% over the last one year on an average, annual return basis per Avantis Investors data. That beats its benchmark by more than 2%. For investors considering investing abroad, AVEM could offer one notable option for a 33 basis point (bps) fee.
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