Is It Time To Exit Emerging Markets? (Part 5 of 5)
Meanwhile, investors looking for a lower risk alternative for accessing emerging markets may want to also consider the iShares MSCI Emerging Markets Minimum Volatility Index Fund (EEMV).
Market Realist – Emerging market minimum-volatility funds are a good way to access emerging markets for risk-averse investors.
Although investing in emerging markets could reward you high returns, you’re subjected to a lot of risk in terms of volatility (VXX). Emerging market minimum-volatility funds try to capture some of the high growth latent in these markets with lower risks. These funds tend to be safer than regular emerging market funds and they provide access to growth for risk-averse investors. Remember, there’s always a risk-to-return trade-off.
The graph above compares the 30-day volatility of the iShares MSCI Emerging Markets Fund (EEM) with those of the iShares MSCI Emerging Markets Minimum Volatility Index Fund (EEMV) over the last three years. As you may have expected, the 30-day volatility suggests that the emerging market minimum volatility fund is less volatile. The 30-day volatility for EEM stands at 19.0% compared to EEMV’s 12.5%
Emerging market minimum-volatility funds try to minimize volatility by investing in low-beta sectors like consumer staples (XLP), utilities (XLU), and healthcare (XLV) within emerging markets.
Read Market Realist’s series What India can offer your long-term investment portfolio to understand why Indian equities could outperform other emerging markets.
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