Investors are reading a lot about market uncertainty right now, likely for a good reason. As potential tariffs and high valuations loom over portfolios, some may be considering other options. Diversification is one thing, but simple diversification may not cut it when facing high-risk, red-hot tech stocks. Rather than chase 2024’s performances, then, investors may want to look longer term to a real upside area. Emerging markets may finally be prepared for their moment in the sun, with emerging markets ETFs offering options therein.
See more: 6 ETFs to Enhance Your Equity Portfolio
Yes, U.S. firms and equities remain a core component of investor portfolios. Emerging markets ETFs, however, can provide satellite exposures that augment that core allocation and provide diversification. Long term, emerging markets ETFs can play that important satellite role and outperform other satellite candidates.
Dollar to Drop?
Should the U.S. dollar drop in value this year, that may benefit emerging markets firms. Many of those firms borrow in U.S. dollars, so a weaker dollar could lessen the pain of debt payments. What’s more, capital may flow to a safer dollar-driven economy like that of the U.S when the dollar is stronger.
The U.S. dollar could struggle amid government volatility. Broad uncertainty about government debt, too, could loom over the currency, making emerging markets more appealing in comparison.
Rise of the Emerging Market Middle Class
Long term, plenty of upside exists in emerging markets with burgeoning middle classes. India, specifically, appeals. A perennial candidate for market hype, the country’s educated middle class is growing amid an era of regulatory liberalization in the formerly red tape-ridden nation.
As a market, India represents an important rising player in emerging markets. Dominated by China, India represents a middle-class option with an upside, thanks to its rising middle class.
Active EM ETFs Can Reach New Highs
Active ETFs marry the tight scrutiny of active investing with the tax efficiency and transparency of ETFs. That may open up a new era for investing in the category, given those attributes.
The Fidelity Enhanced Emerging Markets ETF (FEMR) provides a strong candidate to fill that role. Charging 38 basis points, FEMR actively overweights emerging markets companies that stand out in the firm’s systematic and research-driven stock selection model, while underweighting or avoiding those that don’t. The proprietary model uses a multi-factor approach which includes long-term return drivers like growth, valuation, momentum, and quality. Looking ahead, funds like FEMR could help investors get into that long-term emerging markets upside.
For more news, information, and analysis, visit the ETF Investing Channel.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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