How much allocation to Emerging Markets is too much?

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Post by minesweep » Fri Mar 18, 2011 11:33 am

Healthcare
REIT
Gold
EM

I recall when healthcare was the rage with investors. Has anyone posted anything here recently with regards to increasing his or her exposure to that sector? When REIT’s were the out-performing sector the number of Forum postings here was quite substantial. Of course that interest faded with the collapse of REIT’s. Although with REIT’s more than doubling off that bottom interest has perked up. Now that gold and EM are the rage ................ I hope no one takes offense. Just saying.

Mike

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Re: How much allocation to Emerging Markets is too much?

Post by halfnine » Fri Mar 18, 2011 1:22 pm

Valuethinker wrote:US listed companies do business in China, so do European listed ones.


What's your position on American and European companies maintaining and/or expanding their existing presence in Emerging Markets versus them being slowly displaced by companies within the EM countries themselves?

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Re: How much allocation to Emerging Markets is too much?

Post by Valuethinker » Fri Mar 18, 2011 1:29 pm

halfnine wrote:
Valuethinker wrote:US listed companies do business in China, so do European listed ones.


What's your position on American and European companies maintaining and/or expanding their existing presence in Emerging Markets versus them being slowly displaced by companies within the EM countries themselves?


That the stockmarket has a better fix on this than I do.

It's an argument against overweighting, rather than an argument against weighting.

The biggest EM play right now is probably Rio Tinto-- ie a uk based and listed mining company.

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Re: How much allocation to Emerging Markets is too much?

Post by halfnine » Fri Mar 18, 2011 1:42 pm

Valuethinker wrote:
halfnine wrote:
Valuethinker wrote:US listed companies do business in China, so do European listed ones.


What's your position on American and European companies maintaining and/or expanding their existing presence in Emerging Markets versus them being slowly displaced by companies within the EM countries themselves?


That the stockmarket has a better fix on this than I do.

It's an argument against overweighting, rather than an argument against weighting.

The biggest EM play right now is probably Rio Tinto-- ie a uk based and listed mining company.


I ask because you seem to have the most insight on these forums from a global perspective. And there is definitely an argument on these forums that international exposure can be gathered by investing in the developed world stock markets.

But based on my time living on various continents and traveling, I am more inclined to believe that overall the USA/European companies footprint in the EM countries is going to wane over time. Certainly there are companies that are so well entrenched they will be hard to displace but overall I think many EM countries will be happy to see them and their influence go. But, I'd certainly welcome an opinion to otherwise.

That said I am more inclined long term to invest in the countries markets themselves than in the developed markets and anticipate EM market exposure through them.

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Re: How much allocation to Emerging Markets is too much?

Post by BornInCA » Fri Mar 18, 2011 2:53 pm

erikrief wrote:Ive been looking around everywhere and i cant seem to find a coherent and valid answer to my question. Everyone usually recomends that you invest a portion of your assets in EM, ranging from 10% - 30%. The thing is that Im 25, so i have at least about 40 more years to go before i need to touch my investments in the worst of cases and because of this i have a feeling of complete imunity to volatility. In fact, ive been reading the Boglehead theory so much that in a wierd way im kind of exited when the market goes down and i happen to have extra cash on hand to rebalance. Ok so the question is: Why wouldnt i want to make Emerging Markets 80% of my portfolio, or even more. My time horizon is very long and if i lost 90% of my investment tomorrow it would not really affect me I have a very very long time to make it up. With time i would balance out to a more conservative portfolio but that would not happen in a very long time.
My portfolio rightnow is this but i think its just way to conservative:

US Large Cap 5%
US Large Cap Value 8.5%
US Small Cap 10%
US Small Cap Value 16%
US REITs 3%

Large Cap International Developed 9%
Small Cap Int Developed 11%
Small Cap Int Developed Value 12%

Emerging Large 14%
Emerging Small 9%
Foreign REITs 3%


Going back to the OP's question, I notice that the percentages add up to 100.5%, not 100%. I don't believe there is ever a reason to have 80% or more of a portfolio in EM. That to me seems like having 80% or more of an account in tech stocks at the end of 1999.

However, I believe having 100% of a portfolio in stocks when you're under 40 is a good idea assuming you can stomach the risk and you're adding to your account on a frequent basis (biweekly, monthly, quarterly, etc.). BUT the stock sub-asset classes should be diversified like above.

Also, I assume that the US Large Cap and US Small Cap mentioned are "US Large Cap Blend" and "US Small Cap Blend". If that is the case, I believe that "US Large Cap Value" and "US Small cap Value" percentages should be equal to or less than "US Large Cap Blend" and "US Small Cap Blend" respectively (i.e. % in US LCB >= % in US LCV; % in US SCB >= % in US SCV) because blend funds by definition have both value stocks and growth stocks in them. That's my recommended tweak.

Past performance doesn't guarantee future results. Just because EM may have been the best performer over the last 10 years doesn't mean it will perform better than any other asset class in the next 40 years. Diversification is important here. To see what I mean, google "asset class returns chart".

Below is an example chart:
http://www.callan.com/research/download ... ee/457.pdf

Also, the moneychimp link here would be a good starting point.

If, however, you insist on EM, which by the way is more volatile than U.S. Large cap stocks and foreign developed large cap stocks, what I would do is keep your retirement balance(s) (IRA, Roth IRA, 401k, or combo of these) diversified the way they are. Then you can put 100% of your future contributions in EM. Here's an example:

Your current account balance = $20000; You contribute $100 every 2 weeks. Diversify the $20k and contribute all $100 into EM.

After that rebalance periodically either using percentage band method (i.e. if your EM target percentage is 10% then it shoots to 20% or drops to 5%, rebalance by selling if it's a higher percentage or if EM is 5% or less, selling other overweighted asset class(es) and putting the proceeds into EM) or the calendar method (annually, semiannually, or quarterly). I suppose both would be fine.

Your portfolio is definitely NOT TOO CONSERVATIVE by anyone's measure. Value tilting and small cap tilting are fine BUT overweighting value stocks, any one sector of stocks, or any one market region of stocks is NEVER a good thing.

Disclaimer: I'm in my early 30s. I have a TSP at work and use Vanguard Brokerage Services for both my Traditional and Roth IRAs. I have some commodities exposure in my Traditional IRA. My TSP balance is much much greater than both my IRA balances. I currently contribute to the TSP and Traditional IRA on a biweekly basis. Aside from the commodities in the Traditional IRA, all my TSP and IRA accounts are in stock funds, albeit different stock funds. I try to maintain diversification of various asset classes within the world of stocks.[/url]

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Re: How much allocation to Emerging Markets is too much?

Post by Noobvestor » Thu May 19, 2011 5:44 pm

Valuethinker wrote:
erikrief wrote:Ive been looking around everywhere and i cant seem to find a coherent and valid answer to my question. Everyone usually recomends that you invest a portion of your assets in EM, ranging from 10% - 30%. The thing is that Im 25, so i have at least about 40 more years to go before i need to touch my investments in the worst of cases and because of this i have a feeling of complete imunity to volatility. In fact, ive been reading the Boglehead theory so much that in a wierd way im kind of exited when the market goes down and i happen to have extra cash on hand to rebalance. Ok so the question is: Why wouldnt i want to make Emerging Markets 80% of my portfolio, or even more. My time horizon is very long and if i lost 90% of my investment tomorrow it would not really affect me I have a very very long time to make it up. With time i would balance out to a more conservative portfolio but that would not happen in a very long time.
My portfolio rightnow is this but i think its just way to conservative:

US Large Cap 5%
US Large Cap Value 8.5%
US Small Cap 10%
US Small Cap Value 16%
US REITs 3%

Large Cap International Developed 9%
Small Cap Int Developed 11%
Small Cap Int Developed Value 12%

Emerging Large 14%
Emerging Small 9%
Foreign REITs 3%


Hi

There is no reason to think that EM will outperform other markets in the long run.

US listed companies do business in China, so do European listed ones.

Whilst if you can find the right Small Cap Value products, and particularly international SCV products, over a 40 year period you do have a good chance of outperforming markets as a whole,

there's no comparable body of evidence regarding EM, except to note that markets which were 'Emerging' 100 years ago, often underperformed developed markets (US is the 3rd best performing market over 110 years, I believe).

So you should not have EM more than the world stock market indices weight in EM.


Image

Still, the markets that are now classified as EM have 'emerged' a lot in the last hundred years ...
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: How much allocation to Emerging Markets is too much?

Post by Noobvestor » Thu May 19, 2011 5:46 pm

[You will also notice that second to the top, above the US, is a country deemed today to be 'Emerging' as well] ;)
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Post by Manbaerpig » Thu May 19, 2011 7:17 pm

I think a 10% slice to EM is enough for anybody

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Post by gkaplan » Fri May 20, 2011 7:40 am

Twelve percent for me.
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Re: How much allocation to Emerging Markets is too much?

Post by OkieIndexer » Fri May 20, 2011 8:52 am

erikrief wrote:My time horizon is very long and if i lost 90% of my investment tomorrow it would not really affect me I have a very very long time to make it up.


There's no way you can say "it would not really affect me" until you actually experience a 90% loss (or 50% loss) and find out how it actually affects you.
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

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Post by RaleighStClaire » Fri May 20, 2011 9:27 am

If you want a risky portfolio then instead of 80% EM or slicing 12 ways I'd rather go with something like:

50% US SCV
35% Intl SCV
15% EM V

There's little reason to slice your portfolio 12 ways. The overlap is ridiculous.
Where's that red one gonna go?

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Post by Noobvestor » Sun May 22, 2011 1:32 am

EM has high expected return, low expected correlation. I'm surprised to see so many people stating they do (or that everyone should) underweight EM with respect to the global marketplace. I guess I'm the rebel here, but I just don't mind upping things like small, value and emerging markets that do have a history of performing well-and-differently from developed large cap.
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Post by Noobvestor » Sun May 22, 2011 1:56 am

Some food for thought from the Credit Suisse Global Investment Yearbook, 2010:

Emerging and frontier markets are far too big to ignore. They account for more than 70% of the world’s population (over five times that of developed markets), 46% of its land mass (twice that of developed markets), and 31% of its GDP (almost half that of developed markets). And, taken as a group, their real GDP growth has been much faster than in developed markets ... today’s emerging markets could easily account for 40%–50% of total world capitalization by 2050.


The attractions of investing in emerging markets depend on an investor’s starting point. Consider an equity investor whose holdings are entirely in developed markets. A small position in emerging markets will disproportionately reduce portfolio volatility. For example, a 1% reallocation to emerging equities will reduce portfolio volatility by more than 1%. Even if emerging equities offer the same expected return as developed equities, it is worth reallocating some of a portfolio to emerging markets.


In Forbes’ 2009 ranking of the top global companies, three of the five constituents with the largest market capitalizations are from emerging markets. No fewer than 11 of the top 100, ranked by total market capitalization, are from China  more than from any other country in the world apart from the USA. Perhaps surprisingly, therefore, the weighting of emerging markets in the all-world indices published by MSCI and FTSE is only some 12%. This is because these indices reflect the freefloat investable universe from the perspective of a global investor.


I don't know 'bout the rest of ya'll, but I plan to be around come 2050, and would rather not have 0% allocated to half the planet's market cap :) Even now holding just 12% is rather on the low side (particularly for anyone who, for example, holds REITs to 'make up' for their under-representation in the market!).

On the other hand, as the yearbook concedes, EM is indeed risky, though a lot less risky taken as a whole than as individual markets, and not orders of magnitude more risky than developed. So I guess I understand 'low' EM, though 'no' EM still utterly baffles me.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Post by bond50 » Sun May 22, 2011 12:37 pm

Noobvestor wrote:Some food for thought from the Credit Suisse Global Investment Yearbook, 2010:

Emerging and frontier markets are far too big to ignore. They account for more than 70% of the world’s population (over five times that of developed markets), 46% of its land mass (twice that of developed markets), and 31% of its GDP (almost half that of developed markets). And, taken as a group, their real GDP growth has been much faster than in developed markets ... today’s emerging markets could easily account for 40%–50% of total world capitalization by 2050.


I don't know 'bout the rest of ya'll, but I plan to be around come 2050, and would rather not have 0% allocated to half the planet's market cap :) Even now holding just 12% is rather on the low side (particularly for anyone who, for example, holds REITs to 'make up' for their under-representation in the market!).

On the other hand, as the yearbook concedes, EM is indeed risky, though a lot less risky taken as a whole than as individual markets, and not orders of magnitude more risky than developed. So I guess I understand 'low' EM, though 'no' EM still utterly baffles me.


As a no EM proponent, one point that you gloss over is that by 2050, when today's emerging markets hold over half of the global market cap, many of those markets probably won't be considered emerging anymore.

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Post by Noobvestor » Sun May 22, 2011 12:42 pm

bond50 wrote:
Noobvestor wrote:Some food for thought from the Credit Suisse Global Investment Yearbook, 2010:

Emerging and frontier markets are far too big to ignore. They account for more than 70% of the world’s population (over five times that of developed markets), 46% of its land mass (twice that of developed markets), and 31% of its GDP (almost half that of developed markets). And, taken as a group, their real GDP growth has been much faster than in developed markets ... today’s emerging markets could easily account for 40%–50% of total world capitalization by 2050.


I don't know 'bout the rest of ya'll, but I plan to be around come 2050, and would rather not have 0% allocated to half the planet's market cap :) Even now holding just 12% is rather on the low side (particularly for anyone who, for example, holds REITs to 'make up' for their under-representation in the market!).

On the other hand, as the yearbook concedes, EM is indeed risky, though a lot less risky taken as a whole than as individual markets, and not orders of magnitude more risky than developed. So I guess I understand 'low' EM, though 'no' EM still utterly baffles me.


As a no EM proponent, one point that you gloss over is that by 2050, when today's emerging markets hold over half of the global market cap, many of those markets probably won't be considered emerging anymore.


Right, so the strategy then is to sit on the sidelines while they grow, then once they are more stagnant and correlated with western markets (meaning maybe lower returns, definitely less diversification advantage) they will at *that* point be added to what you hold in developed. Is it just me or is that sort of like waiting for the markets to recover to invest in them, thus missing out on much of the upside?

All else aside, though, I thought you might find that one stat interesting at least - just adding 1% EM reduces volatility by 1% ... that is a free lunch being passed up if ever I saw one ...
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Post by bond50 » Sun May 22, 2011 12:43 pm

Noobvestor wrote:EM has high expected return, low expected correlation. I'm surprised to see so many people stating they do (or that everyone should) underweight EM with respect to the global marketplace. I guess I'm the rebel here, but I just don't mind upping things like small, value and emerging markets that do have a history of performing well-and-differently from developed large cap.


Considering that the MSCI emerging markets index only goes back to 1988, there is not enough of a history to make long term judgements about how emerging markets behave. As a no EM proponent, I concede the point about correlation, but have argued elsewhere that EM has lower expected returns than can be found in the developed world when adjusted for risk.

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Re: How much allocation to Emerging Markets is too much?

Post by yobria » Sun May 22, 2011 12:50 pm

erikrief wrote:Why wouldnt i want to make Emerging Markets 80% of my portfolio, or even more.


These are the comments you read when EM swings violently up. When it swings down (eg 90s), people say "why would anyone want to own EM?"

When you buy EM, you're putting your savings in an envelope and mailing to, for example, China, and hoping they mail it back one day. You'll probably get it back, but the risks are certainly higher than developed markets.

80% of total stocks? Just wait til the next crisis, and the next flight to quality.

Nick

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Post by Noobvestor » Sun May 22, 2011 12:53 pm

bond50 wrote:
Noobvestor wrote:EM has high expected return, low expected correlation. I'm surprised to see so many people stating they do (or that everyone should) underweight EM with respect to the global marketplace. I guess I'm the rebel here, but I just don't mind upping things like small, value and emerging markets that do have a history of performing well-and-differently from developed large cap.


Considering that the MSCI emerging markets index only goes back to 1988, there is not enough of a history to make long term judgements about how emerging markets behave. As a no EM proponent, I concede the point about correlation, but have argued elsewhere that EM has lower expected returns than can be found in the developed world when adjusted for risk.


Question: are you talking about EM as a stand-alone investment, or as part of a portfolio? Because as part of a portfolio, risk-adjusted returns go *up* by adding EM, not down, at least up until a point.

To illustrate the point, consider the *average* volatility of a stand-alone emerging market - on average over the last decades, this has been between 30 and 40 percent (wow, right?). Now take the volatility of holding a broad-market emerging index - suddenly it drops down to around 20 percent. Add in a hefty majority of developed, and that all drops down by quite a lot more.

Something having lower risk-adjusted returns does not make it a poor candidate for a diversified portfolio. If that were the metric by which we chose asset classes then no sane person would recommend commodities. I realize you said you concede the point about correlation, but I don't get how you can then segue into saying that lower expected returns leads you to not want to hold that asset class.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Post by Dudette » Sun May 22, 2011 1:18 pm

I have about 37% or so in emerging markets, roughly spread between large cap, small cap value, and frontier markets, a little lighter on the frontier side.

I am putting about 31% of new money into emerging markets, roughly 11% emlc, 10% emsc, and 10% frontier.

While there is a lot better correlation between the markets, the opportunities for growth are in these markets with the aging populations of japan, us, and europe weighing these markets down.

Frontier markets are still a good diversifier with lack of correlation with the markets.

I am mid 40's and fine with the risk. Over the last ten years or so the risk has been to be in the us markets.

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Post by bond50 » Sun May 22, 2011 1:42 pm

Noobvestor wrote:
bond50 wrote:
Noobvestor wrote:EM has high expected return, low expected correlation. I'm surprised to see so many people stating they do (or that everyone should) underweight EM with respect to the global marketplace. I guess I'm the rebel here, but I just don't mind upping things like small, value and emerging markets that do have a history of performing well-and-differently from developed large cap.


Considering that the MSCI emerging markets index only goes back to 1988, there is not enough of a history to make long term judgements about how emerging markets behave. As a no EM proponent, I concede the point about correlation, but have argued elsewhere that EM has lower expected returns than can be found in the developed world when adjusted for risk.


Question: are you talking about EM as a stand-alone investment, or as part of a portfolio? Because as part of a portfolio, risk-adjusted returns go *up* by adding EM, not down, at least up until a point.

To illustrate the point, consider the *average* volatility of a stand-alone emerging market - on average over the last decades, this has been between 30 and 40 percent (wow, right?). Now take the volatility of holding a broad-market emerging index - suddenly it drops down to around 20 percent. Add in a hefty majority of developed, and that all drops down by quite a lot more.

Something having lower risk-adjusted returns does not make it a poor candidate for a diversified portfolio. If that were the metric by which we chose asset classes then no sane person would recommend commodities. I realize you said you concede the point about correlation, but I don't get how you can then segue into saying that lower expected returns leads you to not want to hold that asset class.


As for commodities, they tend be on the exotic end of the investment spectrum for the average middle class investor. I expect emerging markets to have lower risk adjusted returns than the developed markets as an asset class. Now, suppose the developed world returns 7% with 15% volatility and EM returns 7% with 20% volatility. Alternatively assume, that they both have the same volatility 18%, but developed returns 7% and EM returns 5.5%. Under either of those scenarios, the portfolio with perfect foresight should hold some EM, not none, due to the low correlation, but EM should definitely be under-weighted relative to global market cap at the optimal risk/return point.

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Post by Noobvestor » Sun May 22, 2011 1:44 pm

Dudette wrote:I have about 37% or so in emerging markets, roughly spread between large cap, small cap value, and frontier markets, a little lighter on the frontier side.

I am putting about 31% of new money into emerging markets, roughly 11% emlc, 10% emsc, and 10% frontier.

While there is a lot better correlation between the markets, the opportunities for growth are in these markets with the aging populations of japan, us, and europe weighing these markets down.

Frontier markets are still a good diversifier with lack of correlation with the markets.

I am mid 40's and fine with the risk. Over the last ten years or so the risk has been to be in the us markets.


I'm with ya, except I'm still not sure on frontier markets. I was interested, did quite a bit of research, but found that the single-country funds seemed risky, and things like the multi-country ETFs held a lot of emerging and/or tended to correlate with emerging. Out of curiosity, what do you use to get frontier exposure that you like?
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Emerging Markets ?

Post by Taylor Larimore » Sun May 22, 2011 2:12 pm

Why wouldnt i want to make Emerging Markets 80% of my portfolio, or even more.


Hi Eric:

I doubt if you would have asked this question in November 2008 after Vanguard's Emerging Markets Fund plunged -60.1% in the preceding 13 months.

This is from the 2009 Independent Guide to Vanguard Funds:

"I've always cautioned that there's a big risk in emerging markets and we sure saw that in 2008. The bone-breaking tumble, caused by a rolling currency crisis and economic malaise brought on by a massive capital crunch, threw market of may emerging economies one-by-one into the abyss in 1997 and 1998."


Every reputable investment authority recommends diversification. It may be the only "free-lunch" in investing.
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Post by Dudette » Sun May 22, 2011 3:27 pm

Noobvestor wrote:
Dudette wrote:I have about 37% or so in emerging markets, roughly spread between large cap, small cap value, and frontier markets, a little lighter on the frontier side.

I am putting about 31% of new money into emerging markets, roughly 11% emlc, 10% emsc, and 10% frontier.

While there is a lot better correlation between the markets, the opportunities for growth are in these markets with the aging populations of japan, us, and europe weighing these markets down.

Frontier markets are still a good diversifier with lack of correlation with the markets.

I am mid 40's and fine with the risk. Over the last ten years or so the risk has been to be in the us markets.


I'm with ya, except I'm still not sure on frontier markets. I was interested, did quite a bit of research, but found that the single-country funds seemed risky, and things like the multi-country ETFs held a lot of emerging and/or tended to correlate with emerging. Out of curiosity, what do you use to get frontier exposure that you like?


Here's roughly the weigting of the countries in the MSCI EM Index. When I look at my overall portfolio and the em portfolio, I look to diversify regional and country risk. Isreal, Taiwan, and South Korea are going to be dropped from the index soon. China and Brazil will make up ~50% of the index then. I am looking at adding EIDO and TUR and EZA. Things to looks at are valuations of the funds. I am looking forward to a better index than FRN for frontier markets.

South Africa 6.9
China 17.9
India 7.5
Indonesia 1.9
Korea 12.7
Malaysia 2.7
Philippines 0.4
Taiwan 11.4
Thailand 1.3
Czech 0.4
Hungary 0.5
Poland 1.3
Russia 6.3
Brazil 16.9
Chile 1.4
Columbia 0.6
Mexico 4.3
Peru 0.6
Egypt 0.5
Israel 2.8
Morocco 0.2
Turkey 1.5

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Post by Dudette » Sun May 22, 2011 3:45 pm

I might like to pick up something along this lines if it was available to diversify my EM portfolio.

http://www.risk.net/structured-products ... ooks-brics

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Post by Bongleur » Sun May 22, 2011 4:14 pm

Dudette wrote:I might like to pick up something along this lines if it was available to diversify my EM portfolio.

http://www.risk.net/structured-products ... ooks-brics


Seems to require a subscription to access the content.

Synopsis ???
Seeking Iso-Elasticity. | Tax Loss Harvesting is an Asset Class. | A well-planned presentation creates a sense of urgency. If the prospect fails to act now, he will risk a loss of some sort.

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Re: Emerging Markets ?

Post by Noobvestor » Sun May 22, 2011 4:26 pm

Taylor Larimore wrote:
Why wouldnt i want to make Emerging Markets 80% of my portfolio, or even more.


Hi Eric:

I doubt if you would have asked this question in November 2008 after Vanguard's Emerging Markets Fund plunged -60.1% in the preceding 13 months.

This is from the 2009 Independent Guide to Vanguard Funds:

"I've always cautioned that there's a big risk in emerging markets and we sure saw that in 2008. The bone-breaking tumble, caused by a rolling currency crisis and economic malaise brought on by a massive capital crunch, threw market of may emerging economies one-by-one into the abyss in 1997 and 1998."


Every reputable investment authority recommends diversification. It may be the only "free-lunch" in investing.


I agree with Taylor - tilting is one thing, but overweight too far and you wind up where you started: undiversified.

Dudette wrote:
Noobvestor wrote:
Dudette wrote:I have about 37% or so in emerging markets, roughly spread between large cap, small cap value, and frontier markets, a little lighter on the frontier side.

I am putting about 31% of new money into emerging markets, roughly 11% emlc, 10% emsc, and 10% frontier.

While there is a lot better correlation between the markets, the opportunities for growth are in these markets with the aging populations of japan, us, and europe weighing these markets down.

Frontier markets are still a good diversifier with lack of correlation with the markets.

I am mid 40's and fine with the risk. Over the last ten years or so the risk has been to be in the us markets.


I'm with ya, except I'm still not sure on frontier markets. I was interested, did quite a bit of research, but found that the single-country funds seemed risky, and things like the multi-country ETFs held a lot of emerging and/or tended to correlate with emerging. Out of curiosity, what do you use to get frontier exposure that you like?


Here's roughly the weigting of the countries in the MSCI EM Index. When I look at my overall portfolio and the em portfolio, I look to diversify regional and country risk. Isreal, Taiwan, and South Korea are going to be dropped from the index soon. China and Brazil will make up ~50% of the index then. I am looking at adding EIDO and TUR and EZA. Things to looks at are valuations of the funds. I am looking forward to a better index than FRN for frontier markets.



Makes sense to me - the region weightings are my issue with a total-EM fund too, albeit not (to date) a big enough issue that I've moved to more finely slicing things. FRN, AFK, etc... all have around 20 to 40 % in stuff already covered by EM, so not really frontier, and the expense ratios, liquidity, etc... are just not there:

http://lazytraders.com/final-frontier-d ... -benefits/

I'd really like to see a fund that equally weights (or heck, even market weights) frontiers regionally or globally without holding anything in classed as EM, but haven't seen anything like that yet. Alternatively, a region-weighted EM fund would be nice, but unless it were Vanguard-style (cheap and indexed) I'd be skeptical. Meanwhile, I mapped those three funds, and they *do* seem to provide some diversification benefits so far in general, and like you I like to spread my bets, so I can see the appeal: http://bit.ly/ijUUDk
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Dudette
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Post by Dudette » Sun May 22, 2011 6:19 pm

Bongleur wrote:
Dudette wrote:I might like to pick up something along this lines if it was available to diversify my EM portfolio.

http://www.risk.net/structured-products ... ooks-brics


Seems to require a subscription to access the content.

Synopsis ???


The is just the CIVETS index and an ETF that might be made.

Here is a link. Click on the fact sheet...

http://www.standardandpoors.com/indices ... --p-rcv---

CIVETS Exposure...

Colombia 12.4%
Egypt 4.9%
Indonesia 28.3%
South Africa 31.6%
Turkey 21.8%
Vietnam 10 1.0%

What I look for more are countries that are at the cross roads of trade...CIVETS fit the bill. Same things that applied 2000 years ago apply today...

namaste
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Post by namaste » Sun May 22, 2011 7:37 pm

interesting link. CIVETS seems to track pretty closely with emerging markets in recent history, but definitely would add to diversification. I personally am aiming for 6% EM, but that's on top of what's already in my international funds. I was unable to find any emerging market fund other than large cap blend.

Bongleur
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Post by Bongleur » Sun May 22, 2011 9:45 pm

But is there a fund/etf that tracks CIVETS ?
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Dudette
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Post by Dudette » Mon May 23, 2011 3:49 pm

Bongleur wrote:But is there a fund/etf that tracks CIVETS ?


No CIVETS etf yet.

The is also discussion about the Next 11 (etf) - countries other than BRIC.

There is a lot of opportunities in emerging/frontier etfs to come up with a better fund that has better political and geographical diversity. Little disappointed in the design of the funds. A fund that limits any one country weighting to say 20% would be great. FRN with 31% Chili and EWX with ~ the same in Taiwan is silly.

The civets index shown isn't the best either. A few big companies. Prefer a little larger x-section of the companies in the countries that exhibit and benefit from internal growth within the country.

Dudette
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Post by Dudette » Mon May 23, 2011 8:18 pm

Global X is working on a Next 11 etf...Probably be out pretty soon...

http://etfdb.com/2010/global-x-planning-four-new-etfs/

edit...

NXTE Symbol

http://wallstreetsectorselector.com/201 ... -etf-nxte/

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