Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some seemingly undervalued companies operating in emerging markets to your portfolio but don’t have the time or expertise to hand-pick a few, the iShares MSCI Emerging Markets Value ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF’s expense ratio — its annual fee — is a relatively low 0.49%, and it recently yielded around 3%. The ETF is very small, too, so if you’re thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF is too new to have a sufficient track record to assess. As with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why foreign companies?
It’s a smart idea to diversify your holdings not only by market size and industry, but also geographically. If the U.S. economy stalls or slides, other economies may still be performing well and could help offset losses in your portfolio. Many of the companies in this ETF are quite large and pay dividends. That should be welcome, too, as dividends can be quite powerful. Internationally reaped ones can be a little more complicated than domestic ones, though. Finally, companies operating in emerging markets are able to enjoy faster growth as the local economies develop.
More than a handful of emerging-market-based companies had lackluster or poor performances over the past year — but that’s often a contributing factor to a stock’s being undervalued.
Sasol Limited (ADR) (NYSE:SSL) gained just 5%. The South-Africa-based energy and chemical giant sports a dividend yield recently near 5%. Instead of being an ordinary explorer or refiner of oil, it specializes in coal-to-liquid technology and gas-to-liquid technology, producing liquid fuels such as diesel. With a forward P/E ratio around 8 and well below its five-year average of 13, the stock seems attractively priced. Sasol Limited (ADR) (NYSE:SSL)’s geographic diversification spreads its risks around, but it also faces some challenges, such as the fact that a big chunk of its workforce carries HIV.
America Movil SAB de CV (ADR) (NYSE:AMX) lost 17% — and recently yielded 1.6%. The Mexico-based wireless telecom specialist has, in the recent past, helped propel Carlos Slim ahead of Warren Buffett and Bill Gates as the world’s richest man. The company has taken on significant debt building its business, and it is now threatened by regulations aimed at dominant companies. In the U.S., its pay-as-you-go TracFone service is growing, too, with more than 23 million subscribers.
