iShares MSCI Emerging Markets Indx (ETF) (EEM), SPDR S&P 500 ETF Trust (SPY): The World’s Largest Hedge Fund Prefers ETFs to Stocks

Vanguard MSCI Emerging Markets ETF (NYSEMKT:VWO) – Bridgewater had a roughly $3.6 billion position in this ETF as of March 31. The fund has been steadily building its position in the security in recent quarters, underscoring its bullishness on emerging markets. The ETF invests the vast majority of its assets in 820 common stocks included in the MSCI Emerging Markets Index, and as such, is nearly identical to the iShares MSCI Emerging Markets Indx (ETF) (NYSEMKT:EEM). It would appear that Bridgewater has chosen to divide up its emerging market ETF allocation among these two funds for liquidity reasons and so as not to have too big a stake in either security.

The primary difference between VWO and EEM that investors should pay attention to is differences in dividend payouts. While the trailing twelve month yield on the Vanguard MSCI Emerging Markets ETF (NYSEMKT:VWO) is 2.40%, the fund’s payout fell substantially in March and VWO is currently only yielding 0.59%. It is also important to note that payouts at both ETFs have been volatile recently as emerging markets have been underperforming U.S. stocks and emerging market companies have been returning less money to shareholders.

Retail Investors Should Follow Dalio’s Lead

The most important takeaway for investors from Bridgewater Associates’ most recent 13F filing is that even the most sophisticated hedge funds on the planet are using passive index ETF strategies to gain global equity exposure. These vehicles are preferable in most cases to actively managed strategies because of their low fees and passive investing approach.

The vast majority of mutual fund managers cannot outperform their benchmark on a consistent basis. Nevertheless, fees for actively managed mutual funds are often substantially higher than index ETF fees. The obvious conclusion is that most retail investors should be using a low-cost indexing approach. The other takeaway is that Bridgewater is very bullish on emerging markets, despite their current underperformance. Maybe you should be too!

The article The World’s Largest Hedge Fund Prefers ETFs to Stocks originally appeared on Fool.com.

Ryan Glosier has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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