Break out emerging markets into regions?

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Topic Author
Eric White
Posts: 54
Joined: Fri May 18, 2007 10:09 am

Break out emerging markets into regions?

Post by Eric White »

I'm at the early stages of establishing my asset allocation with the help of ETFs.

Reading Rick Ferri's ETF book, I noticed that there is an opportunity to break out emerging marketing from a single WW offering into multiple regions.

The benefit for this approach would be that I could capture a rebalancing effect similar to breaking out foreign between regions (developed Asia, developed Europe). If memory serves me correctly, both Bernstein via Four Pillars and Swedroe via Winning Investment Strategy advocate this approach for deveoped foreign markets.

Although there are parallels with the developed foreign markets breakout, differences include:
- Higher costs (~0.3% higher from VWO)
- Small relative effect on overall portfolio (only one account can use; unable to implement across remaining accounts - 401k, 403b, Vanguard IRAs)
- Fairly even distribution around VWO (see comparison graph below for 1 year existing returns) ... DEM%2C+DGS

Here are the WW versus regional offerings I would be considering. I personally will probably also value and size tilt. I don't know if I would throw in any country-specific offerings; I would probably avoid them to prevent duplication and simplify where possible.

Below are the investment options I am considering:

Vanguard Emerging Mkts ETF (VWO; ER = 0.25%)

SPDR S&P Emerging Europe (GUR; ER = 0.6%)
SPDR S&P Emerging Middle East & Africa (GAF; ER = 0.59%)
SPDR S&P Emerging Latin America (GML; ER = 0.6%)
SPDR S&P Emerging Asia Pacific (GMF; ER = 0.63%)

WW Value and Size Tilts
WisdomTree Emerging Markets High-Yielding Equity Fund (DEM; ER = 0.63%)
WisdomTree Emerging Markets SmallCap Dividend Fund (DGS; ER = 0.63%)

SPDR S&P China (GXC; ER = 0.59%)

I would greatly appreciate any insights you can provide, as well as references to any credible research on the topic. I'm most concerned if the cost to implement is worth the chance for benefits.

Thanks in advance!

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