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2 Emerging Market ETFs That Could Head Higher As USD Weakens

By Investing.com (Tezcan Gecgil/Investing.com )ETFsDec 09, 2020 08:03AM ET
www.investing.com/analysis/2-emerging-market-etfs-that-could-head-higher-as-usd-weakens-200547313
2 Emerging Market ETFs That Could Head Higher As USD Weakens
By Investing.com (Tezcan Gecgil/Investing.com )   |  Dec 09, 2020 08:03AM ET
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The U.S. dollar has been on bearish footing against a wide range of currencies. November was a difficult month for the greenback, and December is not providing much relief, either.

Vaccine cheer worldwide, a clear Biden victory, and the increasing prospects for another U.S. stimulus package have led to a rush into riskier assets. Many now wonder whether the U.S. Dollar Index will break down below the $90 level.

U.S. Dollar Weekly Chart
U.S. Dollar Weekly Chart

We previously discussed how moves in the dollar could affect equity returns overseas for U.S.-based investors. A potential decline in USD typically benefits emerging market exchange-traded funds (ETFs).

Emerging market equities have mostly kept pace with broader U.S. markets. iShares MSCI Emerging Markets ETF (NYSE:EEM) for example, is up over 13% year to date after hitting a record high of $50.99 on Dec. 7. By comparison, the S&P 500 is about 17% in 2020.

According to the Journal of Wealth Management, investing in emerging-market ETFs in addition to iShares Core S&P 500 ETF (NYSE:IVV), a fund composed of established U.S. companies, "leads to higher absolute returns, better risk-adjusted performance (Sharpe and Omega ratios), higher cumulative returns, and increased wealth for U.S. investors. Results are statistically significant."

In the case of further USD weakness, emerging markets could reach fresh all-time highs.

With that in mind, here are two EM funds to consider as the U.S. Dollar Index weakens:

1. Schwab Emerging Markets Equity ETF

  • Current Price: $30.60
  • 52-Week Range: $18.32 - $30.60
  • Dividend Yield: 2.76%
  • Expense Ratio: 0.11%

The Schwab Emerging Markets Equity ETF (NYSE:SCHE) provides exposure to a range of large-cap and mid-cap emerging market firms. The fund started trading in January 2010.

SCHE Weekly Chart
SCHE Weekly Chart

SCHE, which tracks the FTSE Emerging Index, has 1540 holdings. The top ten stocks comprise around 28% of assets under management of $8.2 billion.

Chinese internet e-commerce giant Alibaba (HK:9988), (NYSE:BABA) and social media and entertainment heavyweight Tencent Holdings (HK:0700) (NYSE:TME), chip leader Taiwan Semiconductor (TWO:5425), (NYSE:TSM), China-based food delivery platform Meituan (HK:3690), (OTC:MPNGY) and South-Africa headquartered internet group Naspers (JO:NPNJn), (OTC:NPSNY) lead the names in the fund.

Over a dozen sectors are represented in the fund, including consumer discretionary (20.22%), financials (19.18%), information technology (14.42%), communication services (12.36%), materials (7.06%), and energy (6.14%), among others.

So far in the year, SCHE is up over 1% and hit a record high of $30.60 on Dec. 8. Trailing P/E and P/B ratios are 6.93 and 1.92. Given the recent run-up in prices, some of the fund's heavyweights could come under pressure short-term. Such a decline would offer a better entry point for long-term investors.

2. iShares MSCI Emerging Markets ex China ETF

  • Current Price: $55.56
  • 52-Week Range: $31.17-55.82
  • Dividend Yield: 2.98%
  • Expense Ratio: 0.16%

iShares MSCI Emerging Markets ex China ETF (NASDAQ:EMXC) gives access to large- and mid-cap EM companies, excluding China. The fund started trading in August 2017 and net assets stand around $109 million.

EMXC Weekly Chart
EMXC Weekly Chart

EMXC, which has 530 holdings, tracks the MSCI Emerging Markets ex China Index. 21.78% of the businesses come from South Korea, followed by Taiwan (20.37%), India (14.76%), Brazil (8.29%), South Africa (5.69%), and Russian Federation (4.77%), among others.

iShares MSCI India ETF (NYSE:INDA), Taiwan-based Semiconductor (TWO:5425), (NYSE:TSM), South Korean chip giant Samsung Electronics (KS:005930), (OTC:SSNLF), South Korean semiconductor group SK Hynix (KS:000660), and Naspers are the leading names in the ETF.

YTD, the fund is up 8.5% and also hit an all-time high in December. Trailing P/E and P/B ratios are 17.50 and 1.86. In the case of short-term profit-taking, long-term investors could look to enter the fund around $52.

2 Emerging Market ETFs That Could Head Higher As USD Weakens
 

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2 Emerging Market ETFs That Could Head Higher As USD Weakens

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Comments (6)
carlos gustavo merola
carlos gustavo merola Dec 11, 2020 9:21AM ET
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What you mean clear victory of biden ? Is that clear for you ?
Zack Harding
Zack Harding Dec 10, 2020 7:05AM ET
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“Ye’s connections to the Communist government are extensive and ... Ye was also financially connected to Vice President Biden’s brother, James Biden,” the report says. “Thus, there exists a vast web of corporate connections and financial transactions between and among the Biden family and Chinese nationals.”
Kaz Man
Kaz Man Dec 09, 2020 12:29PM ET
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lost 7k today following top gainers in https://investing.com :( markets being to volatile lately!
Darien Alvarez
Darien Alvarez Dec 09, 2020 12:29PM ET
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what you did to do the opposite :)
Dalwin Paulino
Dalwin Paulino Dec 09, 2020 12:29PM ET
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Invest in crypto instead long term you will thank me
Zack Harding
Zack Harding Dec 09, 2020 12:29PM ET
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SIRC...just before uplisting, 20 million rev. Run rare, currently 12 million market cap...easy 10+ x return in under 6 months.
Yelen Shim
Yelen Shim Dec 09, 2020 12:08PM ET
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For investors in Britain. Do it through Vanguard VFEM. Emerging markets.
Mohamad Sehweil
Mohamad Sehweil Dec 09, 2020 9:08AM ET
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what's your expectations for this month and next mothe for dollar???
Wiley Spaller
Wiley Spaller Dec 09, 2020 8:24AM ET
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this makes me hard
 
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