Emerging Market ETFs Gaining Share

More investors who want to add emerging markets to their portfolios are turning to exchange traded funds to diversify and tap the asset class.

Investors “increasingly see emerging markets forming a core part of their portfolios and many are turning to ETFs to manage that allocation,” the Financial Times reports.

Emerging market ETFs are liquid and low-cost investment instruments that help diversify and round out a portfolio, although global markets seem to be moving in lockstep lately.

Once viewed as a niche play, emerging market assets are beginning to hold a larger part in portfolios, writes Sophia Grene for the FT.

“The very clear investment distinction between developed and emerging markets has blurred,” Farley Thomas, global head of ETFs and wealth solutions at HSBC, remarked.

Emerging markets are also becoming more transparent, allowing the average investor to gain access to information that used to be less accessible. “The data is very powerful in the developed world and we’re beginning to see the same thing in emerging markets,” Ayo Salami, chief investment officer of both the Duet Africa Index Fund and the Duet Africa Opportunities Fund, said.

“If the object is just exposure to the emerging markets story, then a passive instrument is the most efficient,” Salami added.

Over the last year, emerging market ETFs have added $4.3 billion in assets, according to BlackRock, compared to the $269 million for country-specific ETFs that cover developed countries. The low ETF costs, as measured by the total expense ratios, have also contributed to the asset’s wider acceptance, especially in the U.S. where a price war has helped push costs lower.

Click to enlarge charts

Vanguard Emerging Markets ETF (VWO)

iShares MSCI Emerging Index Fund (EEM)

Max Chen contributed to this article.