The MSCI Emerging Markets index has fallen 11% on the year, but a comeback could be on the horizon. Famed investor “Bond King” Jerry Gundlach sees an opportunity that investors should take advantage of in emerging markets (EM).
First it was the pandemic, and now global inflation is adding more pain to the EM space. However, things could turn around, as slow growth in the U.S. thanks to stagflation could push EM equities higher.
“I recommend that investors dollar-cost average out of US stocks and into emerging-market stocks,” Gundlach said. “That is a way of resculpting portfolios that will take advantage of the trends that are underway.”
According to Business Insider, Gundlach was referring to “the relative outperformance in emerging-market stocks in recent weeks, the rising strength of China, the prospect of a weaker US dollar, and the ballooning national debt.”
An Emerging Markets Factor ETF to Consider
Rather than get broad EM exposure, investors can opt for a factor-tilting strategy that’s inherent in the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE ). The fund, as of March 8, currently tilts towards large-cap with just over 50% of its assets, and then mid-cap at 25%, while small-cap accounts for 20%.
TLTE seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Morningstar® Emerging Markets Factor Tilt Index. The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to size and value factors relative to the Morningstar Emerging Markets Index, a float-adjusted market capitalization-weighted index of companies incorporated in emerging-market countries.
The fund will invest at least 80% of its total assets in the securities of the index and in ADRs and GDRs based on the securities in the index. At the heart of the fund lies the factor tilt process incorporated within its strategy.
“Strategic reweighting in the underlying index then is designed to provide a tilt toward the small-cap and value stocks that other market-weighted indices may have historically missed,” FlexShares said. “The resulting fund seeks to reflect the experience of investing in the broad equity market, while reducing the risk of overconcentration in large-cap stocks and pursuing the excess return potential from the value and small size factors.”
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