When most people think of ETFs, they think of the most popular and generic investment products that track major indexes like the S&P 500. However, emerging market ETFs offer investors access to exciting and fast-growing markets worldwide.
Emerging market ETFs are a fantastic way to diversify your investments and take advantage of the growth opportunities in these emerging markets. With the rise of technology and innovation in these countries, they often experience higher economic growth than developed countries, benefiting your portfolio.
Higher potential for growth
Emerging market economies tend to grow faster than developed countries like the US or Europe, making them attractive for investors looking to achieve higher returns over time. For example, China’s economy has grown more than tenfold since 1990, while India’s has grown more than six-fold in that same timeframe. This rapid growth means there is likely more profit potential in emerging market stocks and ETFs than in developed markets.
Emerging markets may be a good option for portfolio diversification because they are often less correlated with the performance of other equity asset classes, such as US stocks or bonds. By building a balanced portfolio that includes domestic and foreign investments, you can mitigate some of the risks associated with having all your investments in one country or geography.
Emerging market ETFs offer another way to add diversity to your portfolio by exposing fast-growing economies without overexposing yourself to specific countries or regions.
Growth opportunities in new industries
As these emerging markets continue their rapid economic expansion, they become more attractive for investment by companies looking to expand globally. This, in turn, creates new opportunities for growth as these companies enter new markets and industries, which offers potentially higher returns for investors who can get in early on these investments.
For example, many technology and internet companies that dominate today’s stock market were born out of the tech boom in Silicon Valley two decades ago.
Diversified groups of stocks
Emerging markets economies often consist of multiple regional or country-level stocks, offering investors a way to diversify their portfolios at the company level and the regional or national level, depending on ETF, South Africa, or Russia. By investing in a fund of these different country stocks, you can potentially reduce specific company-level risks and increase diversification.
No currency risk
Emerging markets are often riskier for investors than developed markets because they lack stability and greater exposure to geopolitical turmoil.
One way that the Saxo Dubai market mitigates this risk is by not requiring investors to deal with acquiring local currencies when they buy stocks listed on foreign exchanges. Instead, they purchase the US dollar equivalent price of the shares and take advantage of price changes without worrying about fluctuations in exchange rates or buying into a currency denomination that may lose value over time.
This simplifies managing your exposure, and your emerging market exposure could include countries like China, India, Brazil, or Russia. By investing in a fund of these different country stocks, you can potentially reduce specific company-level risks and increase diversification.
Diversified groups of stocks
Emerging markets economies often consist of multiple regional or country-level stocks, offering investors a way to diversify their portfolios at the company level and the regional or national level, depending on ETF. By investing in a fund of these different country stocks, you can potentially reduce specific company-level risks and increase diversification.
Lower fees than open trading accounts
Emerging market ETFs typically have lower management fees than traditional brokerage accounts, saving you money over time. Additionally, many of these funds offer tax-advantaged treatment for US investors, which can further reduce the cost of investing. For example, some ETFs are structured as exchange-traded notes (ETNs), exempt from capital gains taxes until they are sold.
This can provide a significant advantage for long-term investors who reinvest their dividends and don’t plan on selling their shares for years or even decades.
Ability to trade throughout the day
Emerging market ETFs can be bought and sold like other stocks during regular trading hours on major US exchanges. This offers flexibility and convenience for investors looking to add or exit their position in these funds without waiting until the end of the trading day. Many ETFs offer real-time pricing, so you can always know exactly how much your shares are worth before trading.