What percent of emerging markets is recommended for international?

[passive101]

What percent of emerging markets is actually inside most popular international funds? You can split them as well into 2 Separate funds.

It's there a good reason to overweight or underweight EM?

[alex_686]

Depends on the index provider you are using. Different ones define EM differently. Ballpark 20%.

With that, 20% would be the neutral market stance. You should only deviate if you have a strong opinion one way or another about EM.

[stan1]

The best approach is to go to the source, such as the page for Total International Stock Market at the Vanguard website:
https://investor.vanguard.com/investmen ... mance-fees

You can see here that emerging markets is reported at 25.1%, with an additional 0.4% in the middle east which would typically be considered a frontier market using other terminology. There is no industry wide standardization on descriptive terms like emerging markets, large, small, value, growth, etc.

[chassis]

What percent of emerging markets is actually inside most popular international funds? You can split them as well into 2 Separate funds.

It's there a good reason to overweight or underweight EM?

Zero percent emerging markets, zero percent international. Invest in US instruments, it is the best capital market in the world. Investing in "international" is investing in underperformance with inconsequentially different volatility. Therefore no advantage, not even the nebulously beneficial "diversification". Or deworseification as Lynch appropriates puts it.

[FoolMeOnce]

What percent of emerging markets is actually inside most popular international funds? You can split them as well into 2 Separate funds.

It's there a good reason to overweight or underweight EM?

Zero percent emerging markets, zero percent international. Invest in US instruments, it is the best capital market in the world. Investing in "international" is investing in underperformance with inconsequentially different volatility. Therefore no advantage, not even the nebulously beneficial "diversification". Or deworseification as Lynch appropriates puts it.

International funds are zero percent international? Thanks for the help!

[nisiprius]

What percent of emerging markets is actually inside most popular international funds?

Caution: there is no standard or objective list of what countries are included in emerging markets. A very important example is South Korea. Some authorities classify it as an emerging market, others do not.

1) One place to find this information is Morningstar.com

For example, consider one of Fidelity's index funds, Fidelity ZERO International Index Fund (FZILX)

Morningstar.com >> Search Quotes and Site >> Type in FZILX, wait a split second for a list to drop down
>> Click on "Fidelity® ZERO International Index" which is the top of the list (and often will be, for ticker symbol searches)
>> Portfolio
>> Scroll down to "Exposures"
>> Click "Region"
>> Click on "vs Category" and change it to "vs Index"

You will see:



Mentally add up 0.62% for Europe Emerging + 14.64% for Asia Emerging to get 15.26% for emerging markets.

Broadly speaking, what you will find for "popular international funds" is this:
1) Some funds only included developed markets and will have almost 0% in emerging markets. This was common years ago, because the most popular international index, MSCI EAFE, only included dveloped markets.

2) Many international index funds will include emerging markets by cap weight, and will hold roughly 15% in emerging markets.

3) Actively managed index funds may vary depending on what the fund manager thinks.

Is there a good reason to overweight or underweight EM?

I know of no good reason. I take what Vanguard gives me in the Vanguard Total International Stock Index Fund.

During 2002-2008, emerging markets experienced spectacular growth, so investors chasing performance liked to overweight them. From 2009 to the present, emerging markets have lagged other international stocks, which in turn have lagged US stocks, so investors chasing performance sometimes invest in developed only. Neither of these are good reasons in my opinion.

Emerging markets are what they are. They are definitely riskier than developed markets. However, as with all stocks, riskier does not necessarily mean worse. The first assumption is investors know that they are riskier and are not willing to pay as much for them, so their prices are lower, which means they may be just as good an investment.

Vanguard speaks of

Emerging markets risk, which is the chance that the stocks of companies located in emerging markets will be substantially more volatile, and substantially less liquid, than the stocks of companies located in more developed foreign markets because, among other factors, emerging markets can have greater custodial and operational risks; less developed legal, tax, regulatory, financial reporting, accounting, and recordkeeping systems; and greater political, social, and economic instability than developed markets.

These are things to know. I don't think they are reasons either to underweight or overweight emerging markets.

I certainly don't believe in trying to figure out which countries or regions are destined for good or bad stock performance.

[tibbitts]

What percent of emerging markets is actually inside most popular international funds? You can split them as well into 2 Separate funds.

It's there a good reason to overweight or underweight EM?

"Good" implies an opinion; obviously if there was an agreed-upon reason, everyone would under or overweight, at which point the market would adjust to whatever they were doing, and that would result in a new market weight. So it's just a matter of personal preference.

[my2p]

What percent of emerging markets is actually inside most popular international funds? You can split them as well into 2 Separate funds.

It's there a good reason to overweight or underweight EM?

The best advice one can give for such matters is: "choose some allocation and stick with it". Some don't bother with international stocks at all. Some want to add more emerging market with a fund like VEMAX. Within your stock allocation, you can do maybe 50% VTSAX, 40% VTIAX and 10% VEMAX, which will give about 20% of your stock allocation to emerging markets and 30% to foreign developed markets. The most important point is picking some allocation and sticking with it.

I did purchase little bit of VEMAX and VWO in the past and still hold them, but I don't bother buying it with new $. I only buy VTIAX for international stocks.

[passive101]

I'm using Betterment and they divide international between a developed and emerging markets fund. I've modified the standard portfolios and settled on 25% international.

I currently have 25% international
AA
15% VEA Developed international
10% VWO Emerging Markets

Is this reasonable or too much?

[muffins14]

I'm using Betterment and they divide international between a developed and emerging markets fund. I've modified the standard portfolios and settled on 25% international.

I currently have 25% international
AA
15% VEA Developed international
10% VWO Emerging Markets

Is this reasonable or too much?

It is not unreasonable. Market cap for you would be more like 6% VWO and 19% VEA

[DonIce]

It's there a good reason to overweight or underweight EM?

Many of the emerging markets are countries with which the US has some geopolitical tensions, and which have a significant base of domestic investors. Obviously the biggest example here is China, which makes up a large portion of most EM indexes. Because the bulk of investment in Chinese equities is by Chinese domestic investors, any price discovery that occurs (even if one believes that markets are efficient in China) will result in pricing that correctly reflects the risks for these Chinese domestic investors. On the other hand, a US investor faces additional risks when investing in China. These risks arise from the geopolitical tension between the US and China and could include actions by either side that cause a break in economic ties, in which case investments held by US investors in China could be frozen, expropriated, disproportionately taxed, or otherwise impacted. These additional risks are not properly compensated for a US investor, since the market price is mostly based on the risks experienced by Chinese investors, not US ones.

This also applies to quite a few other countries in emerging markets, not just China. This risk was recently realized for western investors in Russia.

I stay away from most emerging markets for this reason.

[passive101]

It's there a good reason to overweight or underweight EM?

Many of the emerging markets are countries with which the US has some geopolitical tensions, and which have a significant base of domestic investors. Obviously the biggest example here is China, which makes up a large portion of most EM indexes. Because the bulk of investment in Chinese equities is by Chinese domestic investors, any price discovery that occurs (even if one believes that markets are efficient in China) will result in pricing that correctly reflects the risks for these Chinese domestic investors. On the other hand, a US investor faces additional risks when investing in China. These risks arise from the geopolitical tension between the US and China and could include actions by either side that cause a break in economic ties, in which case investments held by US investors in China could be frozen, expropriated, disproportionately taxed, or otherwise impacted. These additional risks are not properly compensated for a US investor, since the market price is mostly based on the risks experienced by Chinese investors, not US ones.

This also applies to quite a few other countries in emerging markets, not just China. This risk was recently realized for western investors in Russia.

I stay away from most emerging markets for this reason.

Does this mean an ETF Index could actually go to zero?

[muffins14]

Does this mean an ETF Index could actually go to zero?

Sure, but apple and Microsoft could go bankrupt too

[passive101]

Does this mean an ETF Index could actually go to zero?

Sure, but apple and Microsoft could go bankrupt too

Yes but that's not the S&P 500 or NASDAQ.

[muffins14]

Does this mean an ETF Index could actually go to zero?

Sure, but apple and Microsoft could go bankrupt too

Yes but that's not the S&P 500 or NASDAQ.

Apple plus Microsoft is like 10% of your portfolio. They going bankrupt would affect you about the same as if the entirety of China, Taiwan, Brazil, and india were set to zero in VWO

[soretired]

What percent of emerging markets is actually inside most popular international funds? You can split them as well into 2 Separate funds.

It's there a good reason to overweight or underweight EM?

Zero percent emerging markets, zero percent international. Invest in US instruments, it is the best capital market in the world. Investing in "international" is investing in underperformance with inconsequentially different volatility. Therefore no advantage, not even the nebulously beneficial "diversification". Or deworseification as Lynch appropriates puts it.

Finally found a soul mate. USA all the way.

[DonIce]

Does this mean an ETF Index could actually go to zero?

Check out what happened with the Russian index ETFs, like ERUS or RSX.

"Why are the Russian stocks in the portfolio valued at zero even though they are trading in the local market?
A fair valuation of zero has been assigned to the securities held by the Funds in accordance with the Funds’ valuation policies. This reflects the inability to sell these securities due to economic sanctions imposed by the United States and other countries."

https://www.vaneck.com/us/en/blogs/inve ... ation-faq/

[nisiprius]

Does this mean an ETF Index could actually go to zero?

It's hard to answer a question like that. Individual countries' stock markets can and have literally gone to zero. This happened to two of the 23 national stock markets studied by Dimson & al in "Triumph of the Optimists." The two were the Russian (St. Petersburg) stock market and the Chinese (Shanghai) stock markets. I was in diapers when the Shanghai stock market finally closed so I can't say I remember it, but it was "within living memory."

The current Russian stock market effectively went to zero as far as US investors were concerned following Russia's invasion of Ukraine.

So you would need to ask: what is the smallest number of national stock markets in any recognized index? Obviously there are single-country ETFs, such as iShares MSCI Russia ETF, ERUS, which has NOT officially gone to zero--it is "only" down -74% since inception, but that straight-line looks odd and I don't know what happens if you have some and actually try to sell it. The Voya Russia Fund LETRX (not an index fund) did not go to zero either, and appears to still be in operation? Interesting, because a mutual fund is required to redeem at NAV. So there must be details and subtleties here.

[burritoLover]

It's there a good reason to overweight or underweight EM?

Many of the emerging markets are countries with which the US has some geopolitical tensions, and which have a significant base of domestic investors. Obviously the biggest example here is China, which makes up a large portion of most EM indexes. Because the bulk of investment in Chinese equities is by Chinese domestic investors, any price discovery that occurs (even if one believes that markets are efficient in China) will result in pricing that correctly reflects the risks for these Chinese domestic investors. On the other hand, a US investor faces additional risks when investing in China. These risks arise from the geopolitical tension between the US and China and could include actions by either side that cause a break in economic ties, in which case investments held by US investors in China could be frozen, expropriated, disproportionately taxed, or otherwise impacted. These additional risks are not properly compensated for a US investor, since the market price is mostly based on the risks experienced by Chinese investors, not US ones.

This also applies to quite a few other countries in emerging markets, not just China. This risk was recently realized for western investors in Russia.

I stay away from most emerging markets for this reason.

Does this mean an ETF Index could actually go to zero?

It’s virtually impossible for a broadly diversified ETF of even emerging market stocks (like VWO), which consists of 20+ countries to go to zero. There’s only been a handful of markets where this has happened historically and not all at the same time. Now, that’s not to say that the ETF couldn’t see a severe drop.

[nisiprius]

P.S. I never heard of emerging markets before around 2004, not that I'm au courant about such things. And before that time a typical "international index fund" would have tracked the best-known international stock index, MSCI EAFE, which only included developed markets.

Frankly, I think the only reason we hear "emerging markets" discussed so often and so respectfully, as a "normal" component-in-itself in a stock portfolio, is because of one great shining moment... lasting about five years

Source



And it's been part of the conversation ever since.

I don't fuss about EM in my own portfolio because I do the math on how much we are talking about. I already am underweighting international stocks--20% of my stock holdings are international--and at that level, I don't feel the need to underweight EM any more than that. If I do the math... well... in my account

International = 20% of stocks
Emerging markets = 25% of international
China = 30% of emerging markets

China = 30% of 25% of 20% = 1.5% of my stocks.

Simplegift worries that just three countries--China, India, Taiwan--account for about ⅔ of emerging markets. Well, that's still only 66% of 25% of 20% = 3.3% of my stocks. And I don't want to think about situations where all three of them would go to zero at the same time. But even a -3.3% loss would hardly be unprecedented, or fatal to my retirement plans.

[beyou]

I'm using Betterment and they divide international between a developed and emerging markets fund. I've modified the standard portfolios and settled on 25% international.

I currently have 25% international
AA
15% VEA Developed international
10% VWO Emerging Markets

Is this reasonable or too much?

I agree that splitting them up (instead of vxus) has merit.
I decided to do so for one reason. If you think about the “age-in-bonds” asset allocation guideline, the whole point of such guideline is to reduce risk as you age. IMO this could also include reduction of emg markets holdings. I have held VEA or IDEV (for TLH) as my core international holding and consider emg markets an optional higher risk add-on, that I have eliminated now in retirement.

One way to look at this, it is the same debate as tilting, large vs small cap. Total Market US vs sp500+us small cap.
In that case I went with VTI and due to large gains, changing to an sp500 as core would be costly to me. But my VXUS was at a loss at one point, so I TLH into VEA, later again into IDEV.

Finally note the differences between IDEV and VEA, highlight the benefit of sticking with same index publishers across the two funds. CRISP or SP or MSCI will all have different opinions about Hong Kong, and S Korea. So VEA has those 2, IDEV does not. If one adds an emg fund, could double or have no exposure to these 2 debatable regions, depending on your combo of funds/indices. One fund is certainly simpler, but I decided risk control is important, more so than the performance “benefits” of tilting.