Improving Investment Outlook for Emerging Market ETFs

Investors are searching for ways to diversify away from U.S. markets, and many have turned to developing market equities and related exchange traded funds, with a majority of financial advisors and investment professionals revealing an increasingly positive outlook on the emerging economies.

According to a recent Emerging Markets Investor Sentiment Survey conducted by Columbia Threadneedle Investments, 72% of financial advisors and investment professionals surveyed revealed their positive outlook for emerging markets in the next 12 months. Furthermore, the survey showed its most positive emerging markets sentiment score to date.

Participants revealed around 35% of those surveyed have around 1% to 5% allocated to emerging markets while 34% surveyed held 5% to 10%.

The vast majority of participants (96%) said their current allocation to the emerging markets is about the same or higher than 12 months ago. While only 4% said their allocation was lower, there are less critics this year, compared to 15% of respondents with negative outlooks at the end of 2016.

Looking ahead, about 58% of respondents plan to raise their emerging market allocations over the next 12 months while only 3% plan to cut their EM exposure. In contrast, in mid-2016, 46% of respondents said they would increase their allocation.

Investors who are interested in the emerging markets have a number of ETF options available. For instance, some broad emerging market ETFs include the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and Schwab Emerging Markets Equity ETF (NYSEArca: SCHE).

Related: WisdomTree Includes China A-Shares Exposure to Two EM ETFs

 

Alternatively, investors can also look to a number of new factor or smart beta ETF strategies that have hit the market.

“We’ve long been believers that a strategic approach to emerging markets can be beneficial for investors. This shift toward a more positive EM outlook among investors underscores the strong opportunities that can be uncovered in these markets and is critical to invest strategically and understand the nuances of each country or region,” CTI’s Head of Strategic Beta Marc Zeitoun said in a note.

Investors can also breakdown the emerging markets into even more focused strategies. For example, the Columbia EM Quality Dividend ETF (NYSEArca: HILO) provides a play on dividend-paying companies from developing markets, and the Columbia Emerging Markets Consumer ETF (NYSEArca: ECON) includes many high-quality consumer brands that cater toward a rising middle class.

For more information on the ETF market, visit our ETF performance reports category.

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