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Articles on PIE

  • Emerging Markets Help Diversification, Risk and Returns

    04/21/2011

    The volatility in stocks of developed nations during recession encourages diversification.  Today investors are diversifying their portfolio by investing in multiple portfolios nationally, regionally, industrially and sectors.

    One area for diversification is emerging markets which give us the possibilities of strong returns and a market that behaves differently than developed nations’ equities. 

    Tighter monetary policies implemented by China and India, with their fast growing economies, helped drive global growth over the past few years. We believe that the emerging market returns may prove less vigorous after two year impressive gains.

    However governments of these nations have taken measures to overcome inflation by increasing interest rates and they are supported by moderate consumer growth. Emerging market stocks show a reasonable gain on the whole, particularly in solid corporate earnings and growth prospects.

    Today emerging market specialists look at:

    • Technology with demands for new products
    • Telecommunications that offer dividend and earnings growth
    • Consumer companies that saw sharp share price run-ups last year

    They shy away from

    • Financial stocks in a higher interest rate environment because of the monetary policy
    • Companies that face increased competition from large multinational corporations.

    The table shows the major emerging market diversified ETFs

     

    Description

    Symbol

    1 Yr

    3 Yr

    5 Yr

    Avg. Volume(K)

    1 Yr Sharpe

    WisdomTree Emerging Markets Equity Income

    DEM

    19.2%

    9.22%

    NA

    234

    84.76%

    PowerShares DWA Em Mkts Technical Leaders

    PIE

    17.36%

    -4.93%

    NA

    355

    75.05%

    Vanguard MSCI Emerging Markets

    VWO

    15.65%

    2.76%

    10.11%

    22,113

    74.53%

    PoweShares FTSE RAFI Emerging Markets

    PXH

    12.87%

    4.33%

    NA

    123

    66.99%

    Schwab Emerging Markets

    SCHE

    14.1%

    NA

    NA

    222

    65.93%

    iShares MSCI Emerging Markets

    EEM

    13.21%

    2.88%

    9.27%

    69,534

    59.85%

    The overall returns from the emerging market ETF’s are robust with many new ETF’s becoming available. The robust profits induced new ETF’s which have a significant history.

    In terms of five years returns VWO & EEM are the best with returns of 9.27% & 10.11% well above the five year benchmark interest rates. The volumes are also large indicating high levels of liquidity. In term of 1 year returns VWO & EEM again are top with returns of 15.65% & 13.21%.

    It is important to consider risk factors: Investing in Emerging markets can be subject to currency risk in exchange rate and restrictions on the movement of foreign currency. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

    In addition, there may be less governmental supervision and regulations and political instability.

    Despite this, emerging market equities from an important part of a portfolio. Regional diversification provides a hedge against volatility in the USA and other developed markets. This helps with our objective to maximize returns on portfolio while minimizing risk.

    Symbols: DEM, VWO, PXH, PIE, SCHE, EEM

    Disclaimer:

    MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

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  • Emerging Markets Demand Diversification

    04/13/2011

    Diversification is the theme that has emerged since. August 2008. Today investors are diversifying in multiple dimensions: nationally, regionally, industrially and from a sector perspective.

    Emerging markets offer the possibility of good returns but there is some risk. Inflationary pressures and the impact of tighter monetary policies in China and India, with their fast growing economies, helped drive global growth over the past few years. The sharp capital inflows that buoyed emerging markets assets in 2010 could also reverse if economies experience a sudden slowdown.

    Emerging market returns may prove less robust in the coming months after two years of impressive gains. However emerging markets governments that have enough flexibility to effectively manage inflation are likely to continue expanding at healthy rates, supported by moderate consumer growth. Emerging markets stock valuations also appear to be reasonable on the whole, particularly in light of solid corporate earnings and growth prospects, and managers believe there are myriad investment opportunities.

    Portfolio managers and analysts favour technology that is likely to profit from demand for new products as well as telecommunications providers that offer dividends and earnings growth. Consumer companies remain an area of considerable interest, as stocks witnessed sharp share price run-ups last year.

    The same group has become more cautious about some financial stocks in a higher interest rate environment and amid the prospect of tighter regulations for banks. They are also cautious about those that face increased competition from larger multinational corporations.

    Please find below the table of major emerging market diversified ETFs

     

    Description

    Symbol

    1 Yr

    3 Yr

    5 Yr

    Avg. Volume(K)

    1 Yr Sharpe

    WisdomTree Emerging Markets Equity Income

    DEM

    21.48%

    10.04%

    NA

    237

    94.8%

    Vanguard MSCI Emerging Markets

    VWO

    18.24%

    3.63%

    10.34%

    22,047

    86.76%

    PoweShares FTSE RAFI Emerging Markets

    PXH

    16.61%

    4.99%

    NA

    133

    85.96%

    PowerShares DWA Em Mkts Technical Leaders

    PIE

    19.1%

    -5.04%

    NA

    362

    82.45%

    Schwab Emerging Markets

    SCHE

    17.1%

    NA

    NA

    220

    79.96%

    iShares MSCI Emerging Markets

    EEM

    15.01%

    2.94%

    9.46%

    69,576

    68.53%

     

    In terms five years returns VWO & EEM are the best with returns of 10.34% & 9.46% well above the five year benchmark interest rates. The volumes are also large indicating high levels of liquidity. In term of 1 year returns DEM again VWO are top with returns of 21.48% & 18.24%.

    VWO employs an indexing approach to provide broad exposure to the equity markets of emerging countries mainly Europe, Asia, Africa and Latin America. The median market capitalization is of $ 18 billion. The expense ratio is 0.22% as of 25/02/2011. Please find attached the top ten largest holding as on 28/02/2011. (These holding comprise of 19% of the net assets of the fund.)

    1.        Petroleo Brasileiro SA

    2.        Vale SA

    3.        Samsung Electronics Co Ltd.

    4.        Gazprom OAO

    5.        Taiwan Semiconductor Manufacturing Co Ltd.

    6.        China Mobile Ltd

    7.        America Movil SAB de CV

    8.        Itau Unibanco Holding SA

    9.        Industrial & Commercial Bank of China

    10.    China Construction Bank Corp

    Diversification is always a good strategy but before diversifying we have to consider the risk factors. Investing in Emerging markets can be subject to currency risk in exchange rate and restrictions on the movement of foreign currency. In addition, there may be less governmental supervision and regulations and political instability.

    Despite this, emerging market equities from an important part of a portfolio. Regional diversification provides a hedge against volatility in the USA and other developed markets. This helps with our objective to maximise returns on portfolio while minimizing risk.

    Disclaimer:

    MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

    Symbols: DEM, VWO, PXH, PIE, SCHE, EEM

    (NYSE: DEM), (NYSE: VWO), (NYSE: PXH), (NYSE: PIE), (NYSE: SCHE), (NYSE: EEM)


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