A small (5%) part of my portfolio is the emerging market asset class. I admit, this is not a dividend stock but it does fit into my overall asset allocation strategy. I want diversification with the opportunity to achieve some strong portfolio returns. In effect, I take on extra risk for the hope of enhanced returns.[ad#tdg-embedded]
As I browse around the web, I often come across questions to investment experts about investing in China or India or Brazil or a number of other countries that at the time are considered to be “emerging”. The question is always asking if it is wise to invest directly in that market. If my opinion were asked on how to answer those questions I would undoubtedly tell these investor not to invest in any of them individually. The risks are too high.
Instead, I would steer them towards an index fund or ETF which helps spread the risk across multiple emerging markets (considering the historical stock trends, I rather have several stocks in my portfolio through a ETF), relieving the investor of choosing (read: guessing) which of those emerging markets will succeed and which will not. Let’s face it, some of these markets are politically and/or socially unstable which can lead to a wild stock market ride that no matter how smart you are you cannot really call. Take that guesswork away and buy an index fund.
Two Emerging Market Index Fund Options
My personal choice for an index fund and the one that I hold in my portfolio is the Vanguard Emerging Markets Stock ETF (VWO). I use this fund because of its low expense ratio (0.27%).
If you are really tied to dividend investing, then there is an ETF option through WisdomTree that focus on the emerging market area with a focus on dividend yield.