Anyone exclude emerging markets?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
john4546
Posts: 82
Joined: Fri Dec 08, 2017 11:10 am

Anyone exclude emerging markets?

Post by john4546 » Thu Mar 15, 2018 8:32 am

Just curious, anyone avoid emerging markets stocks in their portfolio?

Does anyone just use the developed international stock market index fund (VTMGX)? (it's cheaper, more tax efficient (more qualified dividends), less volatile, and "safer").

Some equate emerging markets = third world countries, which should be avoided (too corrupt, [OT comment removed --moderator triceratop] and inefficient). The easy money has been made in these markets and things will get worse.

According to some, Westerners, in particular Americans, tend to be very naive and ignorant about investing in these markets [OT comment removed --moderator triceratop].

See videos on youtube by economist and investor Jayant Bhandari:

https://www.youtube.com/watch?v=hzXZYVogffE&t=2038s

https://www.youtube.com/watch?v=-IqkMYBc_AY&t=997s

https://www.youtube.com/watch?v=bz5sqLK9TW4&t=1742s

All Seasons
Posts: 87
Joined: Sun Dec 10, 2017 4:14 pm

Re: Anyone exclude emerging markets?

Post by All Seasons » Thu Mar 15, 2018 10:47 am

I can understand your trepidation. I wrestled with this thought a few weeks ago. Eventually I just accepted the the weighting in vanguard’s conservative fund and stopped worrying about it (7.5% of equity component and 3% of total portfolio). Whatever will happen will happen.
The market portfolio is always a legitimate portfolio.

User avatar
whodidntante
Posts: 4338
Joined: Thu Jan 21, 2016 11:11 pm

Re: Anyone exclude emerging markets?

Post by whodidntante » Thu Mar 15, 2018 10:52 am

I overweight emerging markets. All stocks are dangerous.

Valuethinker
Posts: 36734
Joined: Fri May 11, 2007 11:07 am

Re: Anyone exclude emerging markets?

Post by Valuethinker » Thu Mar 15, 2018 11:57 am

john4546 wrote:
Thu Mar 15, 2018 8:32 am
Just curious, anyone avoid emerging markets stocks in their portfolio?

Does anyone just use the developed international stock market index fund (VTMGX)? (it's cheaper, more tax efficient (more qualified dividends), less volatile, and "safer").

Some equate emerging markets = third world countries, which should be avoided (too corrupt, irrational and inefficient). The easy money has been made in these markets and things will get worse due to their inherent culture.

According to some, Westerners, in particular Americans, tend to be very naive and ignorant about investing in these markets.

See videos on youtube by economist and investor Jayant Bhandari:

https://www.youtube.com/watch?v=hzXZYVogffE&t=2038s

https://www.youtube.com/watch?v=-IqkMYBc_AY&t=997s

https://www.youtube.com/watch?v=bz5sqLK9TW4&t=1742s
2 issues.

1. you have to believe you know something about EM that the market as a whole does not already know. The companies are sketchy? Well, the valuation is also lower than USA, so who is to say that this is not a fair value for this company?

Why would you know something about EM governance, volatility, risk etc. that the market does not? In addition, if you do, you could make a good living at a hedge fund, shorting EM. So is one sitting here telling other people, rather than trading on this valuable, proprietary knowledge?

2. there is an issue with the concentration of EM, the high Chinese weighting and in particular around Tencent & Alibaba. 2 internet stocks on huge valuations. So with too large an EM exposure, that's a significant risk.

bearcub
Posts: 918
Joined: Sat Mar 08, 2008 7:54 am
Location: Twilight Zone

Re: Anyone exclude emerging markets?

Post by bearcub » Thu Mar 15, 2018 12:37 pm

I have a small amount in my Global Wellesely Fund. Would"nt sweat if they were their or not.

User avatar
unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Anyone exclude emerging markets?

Post by unclescrooge » Thu Mar 15, 2018 12:48 pm

20% of my portfolio is EM.

User avatar
Aptenodytes
Posts: 3751
Joined: Tue Feb 08, 2011 8:39 pm

Re: Anyone exclude emerging markets?

Post by Aptenodytes » Thu Mar 15, 2018 1:42 pm

I overweight them because I think the preponderance of evidence suggests that they act as if they were a factor. I realize this is not an accepted fact.

For comparison purposes, it seems that what matters is the percentage of your international portfolio that is emerging, as opposed to percentage of your portfolio or percentage of your stocks. If Mary's portfolio is 5% EM and Joe's is 10% EM, we don't really know anything about their attitude toward EM because we don't know what their international stock percentage is. Joe might be underweighting and Mary might be overweighting.

My international stocks are 40% EM, as defined by Vanguard, whereas market weights would be about 20% EM.

I get there with a target international stock AA of 2/3 small and 1/3 EM.

alex_686
Posts: 4069
Joined: Mon Feb 09, 2015 2:39 pm

Re: Anyone exclude emerging markets?

Post by alex_686 » Thu Mar 15, 2018 1:58 pm

I will note that there has been a modest decoupling between EM stocks and EM economies. Check out the indexes and you will find them dominated by multinationals. The multinationals tend to have higher standards then their domestic counterparts. Most of these have sponsored ADRs in the US put them under SEC jurisdiction.

I used to overweight EM markets on the assumption that they were filled with domestic value companies and as EM countries rapidly joined the DM that these companies would grow. I hold them at a neutral level. I will point out that the EM market is very tech heavy.

User avatar
Elsebet
Posts: 607
Joined: Mon Feb 08, 2016 2:28 pm
Location: Washington state

Re: Anyone exclude emerging markets?

Post by Elsebet » Thu Mar 15, 2018 2:05 pm

I have 20% international in my portfolio; of that 60% is EM Index and 40% is Total International Index.

H-Town
Posts: 1309
Joined: Sun Feb 26, 2017 2:08 pm

Re: Anyone exclude emerging markets?

Post by H-Town » Thu Mar 15, 2018 2:14 pm

10-12% EM... good money maker.

User avatar
jhfenton
Posts: 3540
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: Anyone exclude emerging markets?

Post by jhfenton » Thu Mar 15, 2018 3:11 pm

whodidntante wrote:
Thu Mar 15, 2018 10:52 am
I overweight emerging markets. All stocks are dangerous.
+1 We're at about 1/4 of equities in EM, 20% directly in EM funds and then ~20% of our 30% stake in VSS (Vanguard FTSE all-World ex-US Small Cap) is EM small cap.

I do keep an eye on the weight of China in our EM funds. Currently it's about 1/3 in both. Fewer of the EM small caps are in China. Overall it works out to about 7.5% of our equities in China, and I'm fine with that.

User avatar
oldcomputerguy
Posts: 3564
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Anyone exclude emerging markets?

Post by oldcomputerguy » Thu Mar 15, 2018 3:23 pm

I really don't have a reason to hold a preference one way or the other regarding emerging markets (I'm not smart enough to try to second-guess the market), so I just hold whatever percentage is present in Total International Market (VTIAX). Right now I believe it's around 21% of that fund.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

GibsonL6s
Posts: 263
Joined: Tue Aug 29, 2017 12:17 pm

Re: Anyone exclude emerging markets?

Post by GibsonL6s » Thu Mar 15, 2018 4:49 pm

I currently do not have any foreign stocks, I am thinking that this may be an area where active makes some sense and may consider a small allocation to an active foreign fund, but it would not be emerging.

Jack FFR1846
Posts: 8120
Joined: Tue Dec 31, 2013 7:05 am

Re: Anyone exclude emerging markets?

Post by Jack FFR1846 » Thu Mar 15, 2018 4:52 pm

*raises hand*

All of my international is in Vanguard Developed International.

I specifically want nothing to do with Russia.
Bogle: Smart Beta is stupid

User avatar
whodidntante
Posts: 4338
Joined: Thu Jan 21, 2016 11:11 pm

Re: Anyone exclude emerging markets?

Post by whodidntante » Thu Mar 15, 2018 4:57 pm

GibsonL6s wrote:
Thu Mar 15, 2018 4:49 pm
I currently do not have any foreign stocks, I am thinking that this may be an area where active makes some sense and may consider a small allocation to an active foreign fund, but it would not be emerging.
Active doesn't outperform passive unless costs for the active fund are extremely low. International and EM are not exceptions to this. Active adds much less value than people think.

User avatar
unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Anyone exclude emerging markets?

Post by unclescrooge » Thu Mar 15, 2018 4:58 pm

Jack FFR1846 wrote:
Thu Mar 15, 2018 4:52 pm
*raises hand*

All of my international is in Vanguard Developed International.

I specifically want nothing to do with Russia.
Russia was the best performing country in 2016. Up 50%.

If you hate making money, that just means there's more for me. :mrgreen:

User avatar
stockpickerted
Posts: 47
Joined: Thu Dec 11, 2008 10:14 am

Re: Anyone exclude emerging markets?

Post by stockpickerted » Thu Mar 15, 2018 4:59 pm

I avoid most, especially, China because I don't trust the sources of the available information.

User avatar
unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Anyone exclude emerging markets?

Post by unclescrooge » Thu Mar 15, 2018 5:03 pm

alex_686 wrote:
Thu Mar 15, 2018 1:58 pm
I will point out that the EM market is very tech heavy.
That's a benefit. Instead of low margin industrials, EM overweights high margin tech companies.

Check out the performance on EMQQ. I don't own it, but I'm slightly overweight Chinese tech companies. Also overweight mainland China companies, which are hugely underweighted in passive market-cap weighted index funds.

User avatar
unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Anyone exclude emerging markets?

Post by unclescrooge » Thu Mar 15, 2018 5:04 pm

stockpickerted wrote:
Thu Mar 15, 2018 4:59 pm
I avoid most, especially, China because I don't trust the sources of the available information.
If you're a passive investor then you should hold everything at market weight, regardless of your beliefs...unless, if course, you're really an active investor. :mrgreen:

User avatar
unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Anyone exclude emerging markets?

Post by unclescrooge » Thu Mar 15, 2018 5:11 pm

whodidntante wrote:
Thu Mar 15, 2018 4:57 pm
GibsonL6s wrote:
Thu Mar 15, 2018 4:49 pm
I currently do not have any foreign stocks, I am thinking that this may be an area where active makes some sense and may consider a small allocation to an active foreign fund, but it would not be emerging.
Active doesn't outperform passive unless costs for the active fund are extremely low. International and EM are not exceptions to this. Active adds much less value than people think.
Active doesn't outperform passive, unless, by active you mean cheap. Cheap stocks typically outperform expensive ones. For my US holdings, I avoid passive index funds.

However, for international exposure, which are already cheaper than US stocks, I go passive, with minor tilts to country or sectors I think are underweighted in the passive index funds.

golfCaddy
Posts: 728
Joined: Wed Jan 10, 2018 10:02 pm

Re: Anyone exclude emerging markets?

Post by golfCaddy » Thu Mar 15, 2018 6:01 pm

Valuethinker wrote:
Thu Mar 15, 2018 11:57 am
2 issues.

1. you have to believe you know something about EM that the market as a whole does not already know. The companies are sketchy? Well, the valuation is also lower than USA, so who is to say that this is not a fair value for this company?

Why would you know something about EM governance, volatility, risk etc. that the market does not? In addition, if you do, you could make a good living at a hedge fund, shorting EM. So is one sitting here telling other people, rather than trading on this valuable, proprietary knowledge?
There's some holes in the EMH, as far as emerging markets go. If markets were truly globally efficient, the A-share premium wouldn't exist.

TropikThunder
Posts: 1092
Joined: Sun Apr 03, 2016 5:41 pm

Re: Anyone exclude emerging markets?

Post by TropikThunder » Thu Mar 15, 2018 6:35 pm

Valuethinker wrote:
Thu Mar 15, 2018 11:57 am
2. there is an issue with the concentration of EM, the high Chinese weighting and in particular around Tencent & Alibaba. 2 internet stocks on huge valuations. So with too large an EM exposure, that's a significant risk.
You could make the argument that a TISM fund (like VTIAX) is actually less top-heavy than a domestic TSM (like VTSAX). Top ten holdings in VTIAX are 8.4% of the total, while top ten holdings in VTSAX are 18.1%. Also, Tencent is only ~1% of VTIAX, and Alibaba is only 0.4% (the ADR that is). I agree VTIAX holds a decent sized chunk of China, but even then it's <7% of the total.

Also, I think it's important to keep in mind some perspective re: asset allocation. Take a garden-variety accumulator portfolio of 80% stock/20% bonds with Int'l as 30% of equity (perhaps high, perhaps just a middle ground between "none" and "market weight"). If you include EM at it's market weight within Int'l (~20%), that's 20% of 30% of 80% = 4.8% EM in the overall portfolio, with China comprising <0.4% of the total portfolio. It's not going to help a huge amount, but it's certainly not going to hurt, either.

User avatar
whodidntante
Posts: 4338
Joined: Thu Jan 21, 2016 11:11 pm

Re: Anyone exclude emerging markets?

Post by whodidntante » Fri Mar 16, 2018 6:56 am

unclescrooge wrote:
Thu Mar 15, 2018 5:11 pm
whodidntante wrote:
Thu Mar 15, 2018 4:57 pm
GibsonL6s wrote:
Thu Mar 15, 2018 4:49 pm
I currently do not have any foreign stocks, I am thinking that this may be an area where active makes some sense and may consider a small allocation to an active foreign fund, but it would not be emerging.
Active doesn't outperform passive unless costs for the active fund are extremely low. International and EM are not exceptions to this. Active adds much less value than people think.
Active doesn't outperform passive, unless, by active you mean cheap. Cheap stocks typically outperform expensive ones. For my US holdings, I avoid passive index funds.

However, for international exposure, which are already cheaper than US stocks, I go passive, with minor tilts to country or sectors I think are underweighted in the passive index funds.
Actually active does outperform, or it can. A lot of bogleheads swear by certain low cost active funds. A stock picker fund that provides beta exposure and charges 1% or more is not likely to beat the market net of costs. That's the junk to avoid.

stan1
Posts: 6095
Joined: Mon Oct 08, 2007 4:35 pm

Re: Anyone exclude emerging markets?

Post by stan1 » Fri Mar 16, 2018 8:12 am

Jack FFR1846 wrote:
Thu Mar 15, 2018 4:52 pm
I specifically want nothing to do with Russia.
stockpickerted wrote:
Thu Mar 15, 2018 4:59 pm
I avoid most, especially, China because I don't trust the sources of the available information.
I do not engage in socially conscious investing and try to keep politics and personal beliefs out of my investments. For U.S. domestic investing I invest in Total Stock Market which includes companies involved in cigarettes, alcohol, fracking, mining, and other industries that some might find objectionable. I invest in Total International Stock Market even though it includes investments in a few countries that are not friendly to the United States.

Please do not think this makes me any less patriotic or proud to be an American than someone who chooses to only invest in the US or in developed international markets. That would be equivalent to saying someone who invests in Total Stock Market is less morally sound than someone who applies a socially conscious filter and I think few here would agree with that.

AnonJohn
Posts: 182
Joined: Wed Oct 07, 2015 2:45 pm

Re: Anyone exclude emerging markets?

Post by AnonJohn » Fri Mar 16, 2018 9:03 am

stan1 wrote:
Fri Mar 16, 2018 8:12 am
Jack FFR1846 wrote:
Thu Mar 15, 2018 4:52 pm
I specifically want nothing to do with Russia.
stockpickerted wrote:
Thu Mar 15, 2018 4:59 pm
I avoid most, especially, China because I don't trust the sources of the available information.
I do not engage in socially conscious investing and try to keep politics and personal beliefs out of my investments. For U.S. domestic investing I invest in Total Stock Market which includes companies involved in cigarettes, alcohol, fracking, mining, and other industries that some might find objectionable. I invest in Total International Stock Market even though it includes investments in a few countries that are not friendly to the United States.

Please do not think this makes me any less patriotic or proud to be an American than someone who chooses to only invest in the US or in developed international markets. That would be equivalent to saying someone who invests in Total Stock Market is less morally sound than someone who applies a socially conscious filter and I think few here would agree with that.
I'd kind of agree with that last bit. To the extent that one equates money and speech, your investments are expressions of support for companies. Of course, intent matters, and I'm sure that most people here don't intend any ill with investments in the total stock market (including myself). But someone who is attempting to apply a socially conscious filter is, in my opinion, trying to do something with ethical value. And I respect that intent.

I don't do it myself due to equal parts hypocrisy, believe that such filters may not be impactful, and naive hope that there are other ways to promote responsible corporate governance by being "part of the system". I've been encouraged, for instance, by Larry Fink (Blackrock) saying that companies should make "a positive contribution to society" and Bill McNabb (Vanguard) criticizing companies that "sacrificed long-term value creation to generate short-term results". I take seriously the negligible opportunities I have for votes on corporate stock initiatives.

My $0.02!

John

alex_686
Posts: 4069
Joined: Mon Feb 09, 2015 2:39 pm

Re: Anyone exclude emerging markets?

Post by alex_686 » Fri Mar 16, 2018 11:25 am

unclescrooge wrote:
Thu Mar 15, 2018 5:03 pm
alex_686 wrote:
Thu Mar 15, 2018 1:58 pm
I will point out that the EM market is very tech heavy.
That's a benefit. Instead of low margin industrials, EM overweights high margin tech companies.
Are you sure you are getting high margin tech companies? There are many which are part of the low value add / low margin supply chain process.

Also, this means you are getting exposure to DM economic growth, not EM economic growth. If demand falls for fancy cell phones and laptops drop then there will be issues.

Not dismissing EM - I just don't think it is doing what you think it is doing.

Sockpuppet
Posts: 113
Joined: Mon Oct 23, 2017 9:06 pm

Re: Anyone exclude emerging markets?

Post by Sockpuppet » Fri Mar 16, 2018 11:30 am

My 401ks emerging market fund has high fees so I avoid it there. I've thought about compensating by specifically buying EM in my roth but to date I haven't.

staythecourse
Posts: 6227
Joined: Mon Jan 03, 2011 9:40 am

Re: Anyone exclude emerging markets?

Post by staythecourse » Fri Mar 16, 2018 12:10 pm

john4546 wrote:
Thu Mar 15, 2018 8:32 am
Just curious, anyone avoid emerging markets stocks in their portfolio?

Does anyone just use the developed international stock market index fund (VTMGX)? (it's cheaper, more tax efficient (more qualified dividends), less volatile, and "safer").

Some equate emerging markets = third world countries, which should be avoided (too corrupt, irrational and inefficient). The easy money has been made in these markets and things will get worse due to their inherent culture.

According to some, Westerners, in particular Americans, tend to be very naive and ignorant about investing in these markets.

See videos on youtube by economist and investor Jayant Bhandari:

https://www.youtube.com/watch?v=hzXZYVogffE&t=2038s

https://www.youtube.com/watch?v=-IqkMYBc_AY&t=997s

https://www.youtube.com/watch?v=bz5sqLK9TW4&t=1742s
Wait aren't these reasons for investing in EM? If one is compensated for taking on systemic risks then wouldn't one expect a higher expected return than from US or developed ex US equities? If it happens or not is a different reason, but your arguments for NOT investing is the actual reasons TO invest.

Good luck.
Last edited by staythecourse on Fri Mar 16, 2018 1:25 pm, edited 1 time in total.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

User avatar
unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Anyone exclude emerging markets?

Post by unclescrooge » Fri Mar 16, 2018 12:22 pm

alex_686 wrote:
Fri Mar 16, 2018 11:25 am
unclescrooge wrote:
Thu Mar 15, 2018 5:03 pm
alex_686 wrote:
Thu Mar 15, 2018 1:58 pm
I will point out that the EM market is very tech heavy.
That's a benefit. Instead of low margin industrials, EM overweights high margin tech companies.
Are you sure you are getting high margin tech companies? There are many which are part of the low value add / low margin supply chain process.

Also, this means you are getting exposure to DM economic growth, not EM economic growth. If demand falls for fancy cell phones and laptops drop then there will be issues.

Not dismissing EM - I just don't think it is doing what you think it is doing.
I'm pretty sure the demand for technology is global, and thus the demand for phones and laptops is local to EM.

Regardless, I would rather own a tech company vs a steel company in the face if a recession.

3funder
Posts: 790
Joined: Sun Oct 15, 2017 9:35 pm

Re: Anyone exclude emerging markets?

Post by 3funder » Fri Mar 16, 2018 1:39 pm

No, but I don't overweight them either.

john4546
Posts: 82
Joined: Fri Dec 08, 2017 11:10 am

Re: Anyone exclude emerging markets?

Post by john4546 » Fri Mar 16, 2018 6:23 pm

unclescrooge wrote:
Thu Mar 15, 2018 5:04 pm
stockpickerted wrote:
Thu Mar 15, 2018 4:59 pm
I avoid most, especially, China because I don't trust the sources of the available information.
If you're a passive investor then you should hold everything at market weight, regardless of your beliefs...unless, if course, you're really an active investor. :mrgreen:
Do you invest in junk bonds? Wouldn't emerging markets stocks be considered the "junk stocks" of the global stock market? If you don't invest in junk bonds, why invest in junk stocks or emerging markets stocks? High risk does not always yield high returns, often times just no or vey little return if any.

User avatar
grabiner
Advisory Board
Posts: 23148
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Anyone exclude emerging markets?

Post by grabiner » Fri Mar 16, 2018 9:11 pm

john4546 wrote:
Fri Mar 16, 2018 6:23 pm
Do you invest in junk bonds? Wouldn't emerging markets stocks be considered the "junk stocks" of the global stock market? If you don't invest in junk bonds, why invest in junk stocks or emerging markets stocks? High risk does not always yield high returns, often times just no or vey little return if any.
Both junk bonds and emerging markets stocks should provide higher returns for the higher risk. However, there are several reasons that junk bonds are less attractive:

The risk on junk bonds is correlated with the overall risk of the stock market, because they default more often in a recession. The risk of emerging markets is more diversified; there is no particular reason to expect emerging market stocks to underperform developed market stocks in a global recession.

Junk bonds are tax-inefficient, and holding them in an IRA may push other things out of the IRA for increased tax cost. Emerging market stocks can be held in a taxable account with tax-efficient index funds; you then also benefit from the foreign tax credit, which is often larger for emerging market stocks.

These are the reasons that I invest in emerging markets (and I overweight them for better diversification) but not in junk bonds.
Wiki David Grabiner

User avatar
mhadden1
Posts: 426
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: Anyone exclude emerging markets?

Post by mhadden1 » Fri Mar 16, 2018 9:31 pm

For a while I excluded EM by accident. I like to think I am observant, but somehow I missed the fact that my mainstay international index fund, Schwab SCHF, tracks the FTSE Developed ex US Index. I did some shuffling to get up a little over market weight using the Schwab EM index fund. I am sure a FA would say "That's the danger of DIY." But, at least wasn't charging myself 1%.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

AlohaJoe
Posts: 3944
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Anyone exclude emerging markets?

Post by AlohaJoe » Fri Mar 16, 2018 9:46 pm

john4546 wrote:
Thu Mar 15, 2018 8:32 am
Some equate emerging markets = third world countries
Does anyone actually believe that? It seems like you could only believe that if you don't actually know what markets are considered EM.

These are the MSCI emerging markets (different indexes differ slightly on exactly what is and isn't an EM):

Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates

Many of those are clearly definitely not "3rd world countries" -- Czech Republic, Greece, Hungary, Korea, Poland. Most others, at the very least, have a very very very strong case that they aren't "3rd world countries".

If someone had said "some equate frontier markets = third world countries" I could see that. (Even though the whole "3rd world countries" language marks them out as an aging dinosaur.)

simas
Posts: 288
Joined: Wed Apr 04, 2007 5:50 pm

Re: Anyone exclude emerging markets?

Post by simas » Sat Mar 17, 2018 7:46 am

"If you're a passive investor then you should hold everything at market weight, regardless of your beliefs...unless, if course, you're really an active investor. "

that. home country bias is real. it does not make any sense to me to hold 80% allocation in US if that is 40% of the world equity market.
similarly , excluding at least 10% of the world equities (and rapidly rising), why?

we are not investing in company X or company Y directly (in China, Brazil, South Africa , or say UK, US, of France). instead we are holding the market weighted indexes

risky? yes
more volativity than 'established markets'? yes
at the same, risk is balanced with return, and good diversifier.

Ron Scott
Posts: 1090
Joined: Tue Apr 05, 2016 5:38 am

Re: Anyone exclude emerging markets?

Post by Ron Scott » Sat Mar 17, 2018 11:42 am

I would definitely exclude, although I exclude all international too. I'm more Bogle.

I do understand why some people are attracted to some international, given the valuation level in the US today, but EM is a stretch and I wouldn't go there.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

User avatar
cfs
Posts: 4154
Joined: Fri Feb 23, 2007 1:22 am
Location: ~ Mi Propio Camino ~

Re: Anyone exclude emerging markets?

Post by cfs » Sat Mar 17, 2018 12:20 pm

Good question, and IF you have Vanguard International Growth in your portfolio you do have some of the emerging and submerging markets, this is what you have:

22.50% Emerging Markets
46.20% Europe
18.80% Pacific
00.60% Middle East
10.20% North America
01.70% Other

Good luck with your portfolio, with or without emerging and submerging markets, y gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~

User avatar
Starchild
Posts: 97
Joined: Fri Feb 09, 2018 9:01 am

Re: Anyone exclude emerging markets?

Post by Starchild » Sat Mar 17, 2018 12:31 pm

I have a small chunk of EM etfs. They’ve performed very well as of late. Theyre riskier, this most people have a smaller allocation for them. They’re definitely not third world countries. But only invest in what you believe in.

User avatar
unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Anyone exclude emerging markets?

Post by unclescrooge » Sat Mar 17, 2018 10:20 pm

john4546 wrote:
Fri Mar 16, 2018 6:23 pm
unclescrooge wrote:
Thu Mar 15, 2018 5:04 pm
stockpickerted wrote:
Thu Mar 15, 2018 4:59 pm
I avoid most, especially, China because I don't trust the sources of the available information.
If you're a passive investor then you should hold everything at market weight, regardless of your beliefs...unless, if course, you're really an active investor. :mrgreen:
Do you invest in junk bonds? Wouldn't emerging markets stocks be considered the "junk stocks" of the global stock market? If you don't invest in junk bonds, why invest in junk stocks or emerging markets stocks? High risk does not always yield high returns, often times just no or vey little return if any.
I do invest in junk. And some studies show that junk has outperformed over longer periods.

But that's a spurious argument. EM stocks are not at all like junk bonds. Do you even know what emerging markets are?

john4546
Posts: 82
Joined: Fri Dec 08, 2017 11:10 am

Re: Anyone exclude emerging markets?

Post by john4546 » Sun Mar 18, 2018 9:21 am

unclescrooge wrote:
Sat Mar 17, 2018 10:20 pm
john4546 wrote:
Fri Mar 16, 2018 6:23 pm
unclescrooge wrote:
Thu Mar 15, 2018 5:04 pm
stockpickerted wrote:
Thu Mar 15, 2018 4:59 pm
I avoid most, especially, China because I don't trust the sources of the available information.
If you're a passive investor then you should hold everything at market weight, regardless of your beliefs...unless, if course, you're really an active investor. :mrgreen:
Do you invest in junk bonds? Wouldn't emerging markets stocks be considered the "junk stocks" of the global stock market? If you don't invest in junk bonds, why invest in junk stocks or emerging markets stocks? High risk does not always yield high returns, often times just no or vey little return if any.
I do invest in junk. And some studies show that junk has outperformed over longer periods.

But that's a spurious argument. EM stocks are not at all like junk bonds. Do you even know what emerging markets are?
Have you ever been to an emerging market or third world country? I have.

[OT comment removed --moderator triceratop]

See Jayant Bhandari's videos on youtube.

User avatar
unclescrooge
Posts: 2698
Joined: Thu Jun 07, 2012 7:00 pm

Re: Anyone exclude emerging markets?

Post by unclescrooge » Sun Mar 18, 2018 10:37 am

john4546 wrote:
Sun Mar 18, 2018 9:21 am
unclescrooge wrote:
Sat Mar 17, 2018 10:20 pm
john4546 wrote:
Fri Mar 16, 2018 6:23 pm
unclescrooge wrote:
Thu Mar 15, 2018 5:04 pm
stockpickerted wrote:
Thu Mar 15, 2018 4:59 pm
I avoid most, especially, China because I don't trust the sources of the available information.
If you're a passive investor then you should hold everything at market weight, regardless of your beliefs...unless, if course, you're really an active investor. :mrgreen:
Do you invest in junk bonds? Wouldn't emerging markets stocks be considered the "junk stocks" of the global stock market? If you don't invest in junk bonds, why invest in junk stocks or emerging markets stocks? High risk does not always yield high returns, often times just no or vey little return if any.
I do invest in junk. And some studies show that junk has outperformed over longer periods.

But that's a spurious argument. EM stocks are not at all like junk bonds. Do you even know what emerging markets are?
Have you ever been to an emerging market or third world country? I have.

Some people and cultures just don't get capitalism, modern business, finance and economics concepts - they can lack reason, integrity and responsibility and outright intelligence.

See Jayant Bhandari's videos on youtube.
I lived in a third world country for over a decade.

The only countries that don't get capitalism are communist ones :mrgreen:

Excluding half the world's population and GDP based on some strange notion of "not getting capitalism" is a short sighted way to invest.

I watched a couple of JB's videos. He's pessimistic on EM, and he reminds me of Peter Schiff and John Hussman.
Last edited by unclescrooge on Sun Mar 18, 2018 11:30 am, edited 1 time in total.

indexonlyplease
Posts: 1298
Joined: Thu Apr 30, 2015 12:30 pm
Location: Florida

Re: Anyone exclude emerging markets?

Post by indexonlyplease » Sun Mar 18, 2018 10:47 am

I own Schwab Total Stock International Index Fund in my 3 fund portfolio. I was informed a while back that the fund does not hold EM. I did not know that. Anyway, I made no changes to my 3 fund portfolio.

I don't think I missed out on much. And in the long run who knows.

User avatar
mhadden1
Posts: 426
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: Anyone exclude emerging markets?

Post by mhadden1 » Sun Mar 18, 2018 12:24 pm

indexonlyplease wrote:
Sun Mar 18, 2018 10:47 am
I own Schwab Total Stock International Index Fund in my 3 fund portfolio. I was informed a while back that the fund does not hold EM. I did not know that. Anyway, I made no changes to my 3 fund portfolio.

I don't think I missed out on much. And in the long run who knows.
As I mentioned earlier I did add EM to account for this when I realized it.

But, I completely agree with your conclusion.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

sambb
Posts: 2201
Joined: Sun Mar 10, 2013 3:31 pm

Re: Anyone exclude emerging markets?

Post by sambb » Sun Mar 18, 2018 1:14 pm

i overweight EM for last 1-2years, and it has paid off.
Corruption is priced in.

asif408
Posts: 1507
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Anyone exclude emerging markets?

Post by asif408 » Mon Mar 19, 2018 12:36 pm

OP,

How do you define safety? For example, from the market peak in March 2000 to 2013 US stocks basically had a 0% return, while an investment in emerging markets doubled your money over that same time frame: http://quotes.morningstar.com/chart/etf ... 2%3A955%7D

Yes, you had to endure a year and a half of EM underperformance at the beginning. But EM recovered faster from the dot-com crash and outperformed dramatically over the next decade, which includes its huge drop in the financial crisis. So there doesn't appear to be much safety in any stocks, and if you compare markets such as the US and EM their relative safety varies depending on the time frame.

Since 2011 we've seen the opposite, with EM returning essentially nothing while a US only investor doubled their money: http://quotes.morningstar.com/chart/etf ... 2%3A955%7D

User avatar
LadyGeek
Site Admin
Posts: 49333
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Anyone exclude emerging markets?

Post by LadyGeek » Tue Mar 20, 2018 4:25 pm

This thread is now in the Investing - Theory, News & General forum (general discussion).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
Flymore
Posts: 265
Joined: Tue May 31, 2016 1:31 pm

Re: Anyone exclude emerging markets?

Post by Flymore » Tue Mar 20, 2018 4:27 pm

whodidntante wrote:
Thu Mar 15, 2018 10:52 am
I overweight emerging markets. All stocks are dangerous.
+1

Valuethinker
Posts: 36734
Joined: Fri May 11, 2007 11:07 am

Re: Anyone exclude emerging markets?

Post by Valuethinker » Tue Mar 20, 2018 6:05 pm

AlohaJoe wrote:
Fri Mar 16, 2018 9:46 pm
john4546 wrote:
Thu Mar 15, 2018 8:32 am
Some equate emerging markets = third world countries
Does anyone actually believe that? It seems like you could only believe that if you don't actually know what markets are considered EM.

These are the MSCI emerging markets (different indexes differ slightly on exactly what is and isn't an EM):

Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates

Many of those are clearly definitely not "3rd world countries" -- Czech Republic, Greece, Hungary, Korea, Poland. Most others, at the very least, have a very very very strong case that they aren't "3rd world countries".

If someone had said "some equate frontier markets = third world countries" I could see that. (Even though the whole "3rd world countries" language marks them out as an aging dinosaur.)
Hilarious for people to call Taiwan, South Korea or Poland "Third World Countries". Or even "Emerging Markets". Maybe the corporate governance is not up to snuff - but I can think of plenty of egregious examples in "Developed Markets" as well.

No doubt Singapore in that category too? A city which is significantly more advanced in most ways than anywhere I could name in the developed world. London is antiquated by comparison (and so is New York).

These are countries which are at least as modern as the USA, and to be honest, more modern than the USA in a lot of ways. Visit one of their airports or take some of their high speed trains. Or visit some of the Korean and Taiwanese manufacturing companies. Or check out their internet speed against your average American's.

You could even make a case for UAE (Abu Dabhi & Dubai) - those are pretty amazing and modern cities.

Some parts of the USA feel very "underdeveloped"-- the usual bits, of course: poor rural areas, deprived urban areas etc.

These are developed countries.

I usually come away from such countries thinking "Gosh, they do XXX so much better than we do. Why don't we catch up?" Outside of North America that's things like public transport, public spaces etc. Or airports (living near Heathrow and Gatwick is, of course, not a representative sample of "civilized world airports"; but I've been to a lot of "Third World" airports that are nicer than Miami airport, say).

In Asia I am also always impressed with the adoption of new technology-- they seem to get there faster than anywhere in Europe except the most uber trendy bits.

Other places, not so much.

iamlucky13
Posts: 1083
Joined: Sat Mar 04, 2017 5:28 pm
Location: Western Washington

Re: Anyone exclude emerging markets?

Post by iamlucky13 » Thu Mar 22, 2018 12:12 am

Valuethinker wrote:
Tue Mar 20, 2018 6:05 pm
Hilarious for people to call Taiwan, South Korea or Poland "Third World Countries". Or even "Emerging Markets". Maybe the corporate governance is not up to snuff - but I can think of plenty of egregious examples in "Developed Markets" as well.
In fact, South Korea was added to FTSE's developed market index not very long ago. MSCI has not yet followed suit.

But remember that "developed" in this sense is not necessarily about quality of life or level of infrastructure, but groupings of similar investments. There's a paper on FTSE's decision that explains why they thought traditional metrics like GDP/capita didn't really show the whole picture. I've only skimmed it but they discuss topics that matter to investors, like size of the market, effective regulation, relative stability, and ease of actually conducting trades internationally.

Getting back to the OP's concern, this means emerging markets are expected to be harder to value and have higher volatility, and therefore should logically be priced lower relative to earnings, etc.

So if the horizon is short to medium term (15 years or less?), it seems pretty logical to me to avoid overweighting, or perhaps even to underweight them. Long term, overweighting would hypothetically mean higher average returns.

Referring to some points made up thread, if we're going to consider changing asset allocation based on risk tolerance and reward expectations active investing, then I don't know what passive investing is.

That said, with probably 25-30 years left until retirement, no I'm not under-weighting them. I'm still studying and considering, but my plan in the near future is to shift to slightly over-weighting emerging markets. I haven't settled on a time frame to shift back to market weight.

jalbert
Posts: 3967
Joined: Fri Apr 10, 2015 12:29 am

Re: Anyone exclude emerging markets?

Post by jalbert » Thu Mar 22, 2018 12:58 am

I avoided EM for years, but made the decision to include it in our asset allocation last June. I had read an article that made the case that, surprisingly, DM companies actually have more exposure to a trade war than EM companies. This led to my having an enhanced view of the diversification benefit of EM for a US investor.
Risk is not a guarantor of return.

Post Reply