The Easy Way to Make Money in Emerging Markets
Jun 19th 2012 11:30AM
Updated Jun 19th 2012 2:46PM
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect emerging-market economies to grow briskly over time and want to own some of their companies in your portfolio, the Vanguard MSCI Emerging Markets ETF (NYS: VWO) 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 a lot of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a very low 0.20%. (Vanguard is known for low fees.)
This ETF has performed rather well, handily beating the overall world market over the past three and five years. 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.
With a low turnover rate of 10%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Plenty of emerging-market companies had strong performances over the past year. Taiwan Semiconductor (NYS: TSM) gained 12%, despite the fact that it has been a bit of a bottleneck for its industry, with its supply of 28-nanometer chips not meeting demand. It's ramping up production, but until it meets demand it's causing headaches, probably even for Apple. With nearly 50% market share, though, the company remains a major force in its market.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Brazil's oil and gas giant Petrobras (NYS: PBR) fell 43%, but it has been aggressively adding to its reserves, developing them, and beefing up its production capacity. The stock looks cheap right now, but some fret that it's not delivering on its promise as rapidly as it should.
India-based outsourcing expert Infosys (NAS: INFY) shed 26%, as growth for IT services seems to be stalling. The outlook for growth from the United States has been cut back, and that's a big deal, as most of Infosys' revenue comes from here. Competition is getting stiffer, too, from companies such as IBM and Accenture.
Brazil-based iron-ore producer Vale (NYS: VALE) shrank by 30%, thanks in part to sagging iron-ore prices, currency exchange issues, higher taxes, and slumping global economic growth. Still, it generates much of its business in China and Latin America, which are growing rather rapidly, even if at a slower rate recently. There's a lot to like about the stock, though. It recently scored an eight (out of 10) on my colleague Dan Caplinger's perfect-stock checklist.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
One reason not to worry about companies such as Taiwan Semiconductor is our current mobile revolution, which may dwarf any other technology revolution seen before it. To profit from it, check out our special free report, "The Next Trillion-Dollar Revolution," which names a promising company at the forefront of the trend.
At the time this article was published Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Apple, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of IBM and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Accenture, and Petrobras, along with creating a bull call spread position in Apple and a synthetic long position in IBM. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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