This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features Gary Stringer, president and chief investment officer of Memphis, Tennessee-based Stringer Asset Management.
You may want to take advantage of the recent volatility and stock price declines in emerging market equities. Talk of trade wars combined with problems in Argentina and Turkey have pummeled emerging market stocks in recent months.
These headline issues have weighed on the segment, but they have nothing to do with the long-term economic and consumer spending growth prospects of these countries. On the contrary, the shift from low to middle income and from poverty to middle class is a tangible, long-term theme.
Consider some key stats:
- The aggregate GDP of emerging markets is expected to overtake that of the developed economies by 2020 (Severin).
- Consumer spending in emerging market economies is expected to grow three times faster than in developed markets (Severin).
- The number of global consumers will grow by 1.8 billion by 2025, most of them living in the emerging markets (Mancini).
As disposable income grows in the region, so does spending and consumption, creating a virtuous cycle for economic growth.
At these prices, it makes sense for investors to build positions in emerging market equity assets where the recent sell-off has led to attractive valuations. Of the broad regions, the valuations in emerging markets are now trading at a level below U.S. equities and comparable to developed foreign equities.
What ETFs are we like for tapping into this theme? Many. Among them, the broad market-cap-weighted iShares MSCI Emerging Markets ETF (EEM), the Vanguard Emerging Markets ETF (VWO), as well as the multifactor SPDR MSCI Emerging Markets StrategicFactors ETF (QEMM), which equally weights securities within three pockets: value, minimum volatility and quality.
Mancini, Matteo et al., “The Shift Toward Emerging Markets”
Severin, Claudia Benshimol et al., “Finding Profits and Growth in Emerging Markets”
At the time of writing, Stringer Asset Management held QEMM among its universe of ETFs included in its suite of ETF Portfolios. Stringer Asset Management is a Memphis, Tennessee third-party investment manager and ETF strategist. Contact Stringer Asset Management at 901-800-2956 or at [email protected]. For a complete list of relevant disclosures, please click here.