Emerging markets see light after long dig

Posted on: April 14, 2011 in: Emerging Markets with 0 comments

Vanguard MSCI Emerging Markets ( Ticker: VWO )

Emerging market equities have finally dug back to the surface from under the rubble of the 2008 crisis. Experienced diggers (recall 1998), they made rapid progress. EM equities climbed 76% in 2009 and 20% in 2010. From Nov 2010 however, the pace slowed under the burden of expensive commodities and tighter money supply. Then, a renewed rally since mid-March has brought them back to end-2007 levels. Softening – in both commodity prices and central banks’ attitudes – helped.

Where to from here? We are cautiously bullish. There are negatives: high inflation; inverted yield curves; an expected drop in US liquidity once QE2 ends in June.

But there are more positives. A sustained US recovery – it looks likely – will help EM companies. The 3- and 5-year returns on EM equities are far below their average. At the end of 2007, the 3-year return on EM equities was 135% and overdue for a correction. In 2007, EM valuations – a P/E of about 20x – were the highest of all. Now EM P/E is at about 13.5x, in line with the S&P 500 and below the TSX 60.

For our core, strategic EM holding, we use Vanguard’s VWO, a US ETF holding 900 firms well dispersed across various markets. VWO’s assets have tripled in four months, helped by its low fee of 0.22% – just one third of the fee on iShares EEM, its nearest competitor.


 archerETF Metrix VWO
 Category EM Markets
 Benchmark MSCI Emerging Markets
 Total Holdings 900
 52 Week High $50.37
 Recent Price $49.24
 52 Week Low $35.80
 Avg Daily Volume 22.19 Million Shrs
 Avg Daily Volume ($) $1.09 Billion
 Total Market Cap $62.60 Billion
 ETF Annual Fee 0.22%
 ETF Trading Currency USD
 ETF FX Exposure Various
 Annual Volatility 39.83%
 Correlation to S&P 500 88.43%
 Return to Risk Ratio 132.26%
 Use of Leverage No
 Use of Futures No
 6 month Return 7.02%
 1 Year Return 14.64%
 2 Year Return 88.80%
 3 Year Return 8.12%
 Dividend Yield (TTM) 1.66%

The archerETF Global Tactical Portfolio

archerETF offers Global Tactical Portfolio Management.

Our outlook is Global: we invest across countries, sectors, commodities and other asset classes to improve returns. Our management is Tactical: we strive to select the right opportunities at the right times in response to changing market conditions to manage and minimize portfolio risk.

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© 2011 archerETF Portfolio Management is a division of Bellwether Investment Management, a discretionary portfolio manager registered with the Ontario Securities Commission. This report is provided for information only and does not constitute investment advice. While we believe the information to be accurate and timely, we make no claim or warranty to that effect. Please seek professional advice before making any investment decision. We may hold positions in any or all securities discussed in this report.

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