Cutting risk can cut emerging market gains

Article Excerpt

Some ETFs promote a “scientific” strategy designed to cut their risk without cutting their gains. Computer modelling is such an approach sound. In our view, though, it’s likely to detract from long-term returns. That’s what happens with many funds that use a so-called “black box” to pick stocks, even though it may work for a while, or in retrospect. Here are two “black box” ETFs focused on emerging markets—plus one “plain vanilla” ETF for contrast. ISHARES EDGE EMERGING MARKETS MINIMUM VOLATILITY ETF $58.84 (New York symbol EEMV; TSINetwork ETF Rating: Aggressive; Market cap: $5.5 billion) tracks the MSCI Emerging Markets Minimum Volatility Index; stocks are selected based on their historical volatility in relation to other emerging market stocks. The ETF invests in China (20.7% of assets), Taiwan (14.6%), South Korea (9.2%), India (9.0%), Thailand (7.7%), Malaysia (7.1%), Indonesia (4.7%), Hong Kong (4.2%), Philippines (3.4%) and Chile (3.3%). The main industry allocations are Financials (28.7%), Utilities (20.6%) and Consumer (18.6%). The ETF holds 311 different…

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