emerging markets - really ?

[ps56k]

I recently read an article that discussed how some Emerging Market funds were handling the various aspects of which countries to represent... basically, whadda do with South Korea and the likes of Samsung & Hyundai...

http://www.indexuniverse.com/sections/blog/12259-top-emerging-markets-etfs.html

So, not looking at the countries per se,
but just a quick grab of the ETF top holdings of each fund....

VWO - samsung, china moble, am mobile, china construction, taiwan semi, hyundai
SCHE - taiwan semi, china mobile, china cons, am mobile, brasil, abv, mtn grp, lukoil
EEM - samsung, taiwan semi, china mobile, gaz, am mobile, china cons,m brasil, china bank, hyundai

It's interesting what countries & companies get tossed into the "emerging" status -
I would consider them "emerged"

[livesoft]

Yes, which is why you need to own an emerging markets index fund.

[ps56k]

Yes, which is why you need to own an emerging markets index fund.

that's why I was looking at these 3 "index" funds -
http://finance.yahoo.com/q?s=VWO
http://finance.yahoo.com/q?s=SCHE
http://finance.yahoo.com/q?s=EEM
to see how they compared with which "index" they kinda followed and what holdings.

[Taylor Larimore]

Yes, which is why you need to own an emerging markets index fund.

Vanguard's Total International Fund holds 23% Emerging Market stocks. Using only Total International instead of two funds maintains the market weight in international stocks, eliminates rebalancing between the two funds, lowers cost and simplifies the portfolio.

Best wishes.
Taylor

[freebeer]

...It's interesting what countries & companies get tossed into the "emerging" status -
I would consider them "emerged"

Yep. I think this has partly to due with "emerging markets" having historically been used to fill a logical hole in international allocation, with many folks having North America, Europe, and Japan covered. +1 for Taylor's apt note that holding Total International avoids the classification problem. But the question comes right back if you want to overweight emerging in your portfolio.

IMO a useful definition of "emerging" would be that a country hasn't substantially converged in median income level with US/EUR/Japan. By that criterion S. Korea, Taiwan, Singapore aren't "emerging", they are "developed". The biggest "emerging" economies (ranked by GDP not market capitalization) would be: China, Brasil, India, Russia, Mexico, Indonesia, Turkey, Argentina, Thailand, Columbia, Malaysia, Chile, Philippines. I'm not sure if there's any index funds that cover just these type of countries. I suppose a micro slice-and-dicer could use country funds to overweight but it would be a rebalancing nightmare and lead to various temptations to "fine tune" allocations vs. staying the course.

[ps56k]

In looking at my Total Intl Fund - VGTSX -
I don't really see any of the same "emerging" companies in the top holdings....
http://finance.yahoo.com/q/hl?s=VGTSX+Holdings

And yes, I agree with the definition of "emerging" being somewhat murky depending upon what you are looking for.
I am putting things into the basket labelled.....
capable of participating in a global economy, and import/export to US, Europe, etc...
Maybe that fits with a GDP number, but maybe it's also skewed by some major companies in-country, and yet the country may not show it overall with the GDP type numbers.

Anyway - after I post this - I'll have to go look again at the Vanguard breakdown of these funds by geography. I had awhile ago looked at thing in some message threads discussing the BRIC vs the new MIST countries....

Here's the VGTSX portfolio breakdown chart - kinda weird with the chart being ordered by alpha and not percentage.
https://personal.vanguard.com/us/funds/snapshot?FundId=0113&FundIntExt=INT#hist=tab%3A2

The top slice - 43% Europe - jives with my quick grab of the top 10 holdings.... mostly in Europe.
So, yeah the VGTSX fund has 23% with the Emerging Markets, and we could stand pat, or if we want to overweight add the Vanguard Emerging Market fund to our portfolio....

[ourbrooks]

Alas, companies and countries are not the same thing. Just because a company is based in a country doesn't mean that it gets most of its revenue from there or that it's performance is at all related to the economy of that country. Would you like to invest in the largest diaper company in China, with it's large, young population? The number one company selling diapers in Chinca has its headquarters in Cincinnati and also makes a laundry detergent called Tide! There's no way to find this out for sure, but I'd lay heavy odds that most of Samsung's smart phone revenues don't come from Korea. Along the same line, they have a major semiconductor plan in the U.S. which makes products primarily for (drum roll) Apple!!

The source of the problem is that emerging market indices are market capitalization weighted and to sell a lot of stock, you have to be a big company with lots of revenue. To get lots of revenue, you have to do business where the money is, which is in developed markets; Samsung and Hyudai are household words in the U.S.because they sell so much here.

If you really, really want to invest in companies that reflect the economies of emerging market countries, then its most likely that you'll need to buy shares of mid and small cap companies. These are unlikely to have any measurable participation in the Total International Stock Market fund.

[ps56k]

tnx for the comments on companies vs countries - and really - how we all are in the global market and as you mention sell goods across what appear to be economic & geo boundaries - Samsung, P&G, Hyundai, etc -
SO - not really sure what any segmented geo fund really offers... vs the Total International Index func -
We tend to think of some topic here, then run around for awhile, and finally realize that all is well covered within our portfolio, and no action is required..... then take a nap.

[grabiner]

Note that Vanguard is changing indexes for the emerging markets fund; the FTSE index treats South Korea as developed.

[ps56k]

BTW - what exactly does the "index" provide as a benchmark ?
In looking at the MSCI website - http://www.msci.com/products/indices/country_and_regional/em/
I only see the list of countries added to the grouping, but how are the performance and percentages in each country/sector determined ?

[grabiner]

BTW - what exactly does the "index" provide as a benchmark ?
In looking at the MSCI website - http://www.msci.com/products/indices/country_and_regional/em/
I only see the list of countries added to the grouping, but how are the performance and percentages in each country/sector determined ?

http://www.msci.com/resources/factsheet ... -index.pdf

Like most indexes, these indexes are weighted by market cap; MSCI adjusts market cap for free float (so that a corporation which is half owned by the government or by other corporations' cross-holdings counts at half weight). In each country, the MSCI index contains the largest 85% of the free-float-adjusted market capitalization, making it a large/mid-cap index by country.

(This is an important methodological issue; S&P, for example, sets the small-cap cutoff at a fixed market capitalization independent of country, and thus the S&P international small-cap index has different country weights from the large-cap index.)

[ps56k]

With a new year, comes some new views.....

Wonder how the Vanguard EM funds will change as they migrate from one benchmark to another ?

Since one of the top holdings being South Korea, which will be gradually shed from the EM holdings,
since it is more "developed" vs "emerging",
I guess I could add some of that specific country ETF back in to my portfolio....

Also - just stumbled across the much higher cost fund - VMMSX vs just the index - VEIEX / VWO.

So, a couple of items to review -
1 - do I want to regain the South Korea companies like Samsung, etc... by added that country ETF.
2 - is the higher cost fund VMMSX worth the slightly higher return compared to the index fund VEIEX / VWO ?

[JamesSFO]

With a new year, comes some new views.....

Wonder how the Vanguard EM funds will change as they migrate from one benchmark to another ?

Since one of the top holdings being South Korea, which will be gradually shed from the EM holdings,
since it is more "developed" vs "emerging",
I guess I could add some of that specific country ETF back in to my portfolio....

Also - just stumbled across the much higher cost fund - VMMSX vs just the index - VEIEX / VWO.

So, a couple of items to review -
1 - do I want to regain the South Korea companies like Samsung, etc... by added that country ETF.
2 - is the higher cost fund VMMSX worth the slightly higher return compared to the index fund VEIEX / VWO ?

Visit http://www.ftse.com/vanguard/. Explains how Korea will be moved out over ~26 weeks.

Specifically see here http://www.ftse.com/vanguard/Home/vanguard-transition-index

[gt4715b]

With a new year, comes some new views.....

Wonder how the Vanguard EM funds will change as they migrate from one benchmark to another ?

Since one of the top holdings being South Korea, which will be gradually shed from the EM holdings,
since it is more "developed" vs "emerging",
I guess I could add some of that specific country ETF back in to my portfolio....

If you're using funds/ETF in the same family (FTSE) you don't have to add South Korea back as a separate fund because it's getting moved into the Developed Market Index. So if you're using VWO and VEA, South Korea is going out of VWO and into VEA so there's no real need to do anything.

[rkhusky]

Morningstar considers both Taiwan and S. Korea to be developed. I have been counting them as 1/2 developed in my AA calculations. Singapore is already considered developed. Wikipedia has an interesting chart on which countries are considered emerging by a variety of groups http://en.wikipedia.org/wiki/Emerging_markets.

[patriciamgr2]

I have been looking at "frontier" funds to address one of the issues I think the OP was raising--that "emerging markets" results get swamped by the more-developed countries within the category. (incidentally, that's why i like Vanguard's decision to move S. Korea, although it caused outflows by professional investors from the ETF).

My understanding is that so-called frontier funds will invest in Africa, Middle East (even including Egypt, which I believe is in standard emerging index, too), vietnam, etc. Obviously, this would be a small, speculative holding--my recollection is that the index lost about 60% during the last financial crisis (I didn't look up the exact number--but it's volatile)

Does anyone know if Vanguard is considering an ETF or fund to address MSCI frontier index? Has anyone studied another company's frontier product? I don't buy products like the Templeton line because of the high cost. Have Bogleheads found a cost-effective solution?

thanks, patricia

[susze]

Interesting. yeah it seems the line is this,

Developed -> Emerging -> frontier -> Banana

Not sure how we get a banana country funds

see this post as well

viewtopic.php?f=10&t=21719

[ps56k]

will have to think about this - lots of articles out there today -
http://finance.yahoo.com/news/vwo-index-shift-begins-name-120408480.html

Will have to look at VWO vs VEA - as mentioned in the article,
along with the popular emerging market etf - EEM....

Lastly, will have to compare to our general international fund of VGTSX.

[vesalius]

will have to think about this - lots of articles out there today -
http://finance.yahoo.com/news/vwo-index-shift-begins-name-120408480.html

Will have to look at VWO vs VEA - as mentioned in the article,
along with the popular emerging market etf - EEM....

Lastly, will have to compare to our general international fund of VGTSX.

Check into IEMG in addition to EEM.
IEMG: New And Improved EEM

Also here is recent index universe article comparing and contrasting different EM benchmark indexes: Better Beta

[ps56k]

The real question is - how will VWO look and perform for 2013 -
Now if the #1 and #2 countries are deminished,
what will the performance of the remaining countries, and therefore the fund, look like going forward ?

China - cooling and potential pullback
South Korea - gradual removal from index fund

I was going to add VWO to my son's Schwab account, but now.... not so sure.
>>> I had already added some EWY, to get more of the South Korea exposure.

Should we invest more money in this Emerging Market fund - or ???

[Occupier]

Well if emerging is to developed for you, try frontier. Check out the ETF FM from I shares. I have been to some of those countries. They are like the wild west of folklore. Your really debating the number of angels that can dance on the head of a pin when you start comparing emerging market funds or etf's. I would just pick the lowest cost option. Not losing appreciation to costs is more likely to serve you well than picking a fund because it either invests in S. Korea or not. Dave

[ps56k]

I'd be curious to see a chart/graph of how other funds did in the FTSE benchmark area as an example of how VEIEX / VWO would have performed without the inclusion of the countries they will be migrating out of the fund...

or - how did the Vanguard funds with the countries perform (chart) compared to those funds without the countries ?

This would give us an idea of how the new Vanguard funds will perform in the coming months.

[ps56k]

The Emerging Market landscape seems to shift as their economies mature, and stability becomes the norm.
And now comes - TIMP - Turkey, Indonesia, Mexico and the Philippines - (South Korea no longer considered "emerging")

I don't have the Emerging Market mutual fund,
but did buy the country ETF's for Korea & China.... along with already having Germany.
Have been interested in Mexico - getting a lot of focus - but have not bought as yet.

That cruel reality confronts the four large emerging stock markets known as the BRICs: Brazil, Russia, India and China. These erstwhile ingénues have struggled - the MSCI BRIC Index fell 6.5 percent in the 12 months through March 25 - while four smaller markets with an acronym of their own - Turkey, Indonesia, Mexico and the Philippines, the TIMPs - have excelled, recording gains ranging from 9.4 percent for Indonesia to 37.7 percent for the Philippines.

The TIMPs are blessed with rapid growth, as are many emerging economies. The International Monetary Fund forecasts inflation-adjusted increases in gross domestic product this year of 3.5 percent for Mexico and Turkey, 4.8 percent for the Philippines and 6.3 percent for Indonesia.

[rustymutt]

In looking at my Total Intl Fund - VGTSX -
I don't really see any of the same "emerging" companies in the top holdings....
http://finance.yahoo.com/q/hl?s=VGTSX+Holdings

And yes, I agree with the definition of "emerging" being somewhat murky depending upon what you are looking for.
I am putting things into the basket labelled.....
capable of participating in a global economy, and import/export to US, Europe, etc...
Maybe that fits with a GDP number, but maybe it's also skewed by some major companies in-country, and yet the country may not show it overall with the GDP type numbers.

Anyway - after I post this - I'll have to go look again at the Vanguard breakdown of these funds by geography. I had awhile ago looked at thing in some message threads discussing the BRIC vs the new MIST countries....

Here's the VGTSX portfolio breakdown chart - kinda weird with the chart being ordered by alpha and not percentage.
https://personal.vanguard.com/us/funds/snapshot?FundId=0113&FundIntExt=INT#hist=tab%3A2

The top slice - 43% Europe - jives with my quick grab of the top 10 holdings.... mostly in Europe.
So, yeah the VGTSX fund has 23% with the Emerging Markets, and we could stand pat, or if we want to overweight add the Vanguard Emerging Market fund to our portfolio....

VXUS is about 17% emerging markets ER of .18%

[ps56k]

VXUS is about 17% emerging markets ER of .18%

Yeah - as I mentioned, I have the actual Total International Stock Index mutual fund VGTSX (vs the VSUX ETF),
so I'm covered overall, was just commenting on the landscape of the Emerging Markets and how it shifts over time....
like now with South Korea.

Have the VGTSX for International, and specific country ETF's like- South Korea, and China, along with holding Germany.

The Vanguard Emerging Markets VEIEX fund is more focused on these....
(there is another thread comparing VGTSX vs VEIEX)

China 18.6%
Brazil 14.3%
Taiwan 11.1%
India 8.1%
South Africa 8.1%
Korea 7.7%
Russia 6.4%
Mexico 5.6%
Malaysia 4.1%
Indonesia 3.2%
Thailand 3.0%
Turkey 2.3%
Chile 2.2%
Philippines 1.4%
Poland 1.4%
Colombia 1.1%
Peru 0.4%
Czech Republic 0.2%
Hungary 0.3%
United Arab Emirates 0.3%
Egypt 0.1%
Netherlands 0.1%
Morocco 0.0%
Hong Kong

[nedsaid]

There is some disagreement over which countries truly are emerging markets. An article I read some time ago noted the nations of South Korea and Israel. At that time, many people believed these to be fully developed economies and markets.

To me, the key thing is to get beyond just Western Europe and Japan. Investors need greater geographical diversification.

I would consider Latin America, Africa, the Middle East (excluding Israel), Eastern Europe, and the far East (excluding Japan and South Korea) to be emerging markets.

[grabiner]

There is some disagreement over which countries truly are emerging markets. An article I read some time ago noted the nations of South Korea and Israel. At that time, many people believed these to be fully developed economies and markets.

To me, the key thing is to get beyond just Western Europe and Japan. Investors need greater geographical diversification.

As long as you use matching developed and emerging markets funds, you will get the questionable countries in one or the other. Vanguard does have the problem that Tax-Managed International follows an MSCI index which considers South Korea to be emerging, and Emerging Markets Index follows a FTSE index which considers South Korea to be developed, so you don't get it in either fund if you use this pair. (The most recent published Vanguard portfolios are as of March 31 and don't yet include the change of Emerging Markets from MSCI to FTSE.) I expect that this issue will go away soon.

You can avoid this problem either by holding Total International, which doesn't care whether countries are developed or emerging. Alternatively, if you do use Tax-Managed International (or the TSP's I fund, which tracks the same index), you could use iShares' IEMG for your emerging markets, which also follows an MSCI index and which includes small-caps. (IEMG has the same expense ratio as Vanguard's VWO or Admiral shares.)

[nedsaid]

That is great information. Thank you.

[Epsilon Delta]

There is a distinct odor to classifying Taiwan, Singapore and South Korea as emerging markets. By most measures they have done better than the EU as a whole, and certainly better than many of it's constituent parts. If this keeps up we'll have to look at reclassifying several core European countries and a couple of US states.

[Scooter57]

It seems to me that lumping SIngapore and Taiwan with Africa and Mexico reflects the typical American ignorance about countries, their histories, and their cultures.

I would feel much happier if I were given the opportunity to invest in countries sorted by their industrial histories and their political styles. Investing in dictatorships is very different than investing in true democracies. Investing in cultures with a long history of entrepreneurship is very different from investing in countries only a generation or two away from a completely agricultural economy.

So the total international market, cap weighted approach, seems a lot sounder to me than slice and dice when it comes to international investments.

[otbricki]

Well, FTSE and S&P consider South Korea a developed country. Singapore and Taiwan are considered developed by some as well.

Mexico is definitely emerging, however Chile is a member of the OECD and is likely to be widely accepted as the first Latin American developed nation by the end of this decade.

Maybe I should start a fund....