Broad-based funds have contributed greatly to investors' poor performance in this bear market, as most big indexes have grown disproportionately large with financial holdings, which have become the worst place to be. (Tech stocks were the culprit in the previous bear market.)
Just as people learned about the importance of emerging-market exposure at the beginning of this decade, more will want to invest in individual sectors outside the developed world.
Investors who build portfolios sector by sector with ETFs just got new tools from
Emerging Global Shares
EGS Emerging Markets Energy Fund
EGS Emerging Markets Metals & Mining Fund
( EMT) are the first to be sold, with 10 others coming soon.
Emerging-market funds like
iShares MSCI Emerging Markets Index Fund
don't allow for precision in constructing portfolios. Investors ought to be able to pick industries in emerging markets, enabling them to overweight consumer staples, health care and utilities during bear markets and transition to energy and materials when economies rebound.
The funds each own 30 stocks screened for float-adjusted market capitalization, revenue and profit. The holdings are liquid, allowing the funds to operate smoothly. This means the heaviest stocks aren't obscure.
The energy fund is heaviest in Russia, at 36%; India, 18%; China, 16%; and Brazil, 9.5%. Poland, Hungary and Colombia also are represented. The largest individual stocks are India's
, at 11.8%;
, 9.2%; and
The metals and mining fund is heaviest in South Africa, at 30%; Brazil, 23%; China, 16%; and Russia, 13%. Smaller weightings include Indonesia and Turkey. The two largest holdings are from mining-rich South Africa:
, 9.7%; and
, at 9.54%.
The funds have the potential to be volatile, which at times is a good thing. But both have quite a few stocks with 8% to 9% weightings, so any misstep will put a drag on the fund, as would some sort of meltdown in certain larger countries.
Not only hedge funds will use these ETFs. Investment advisers and do-it-yourselfers will find them helpful. The days of relying on a couple of broad-based domestic index funds and a couple foreign index funds are over.
At the time of publication, Roger Nusbaum had no positions in the securities mentioned.
Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
to send him an email.