Emerging markets are working hard to innovate. Like Brazil (XBZ), which has become the world's largest exporter of ethanol, made entirely from sugarcane. Over the next twenty years, emerging markets could be a remarkable story with growth potential, and it's one that iShares' emerging market funds get you into easily.
Why include emerging markets in a portfolio?
An allocation to emerging market equities provides diversification and can enhance a portfolio's risk/return profile. By offering access to companies—and even entire industries—that may not exist in Canada, as well as the growth potential associated with fast-growing economies, emerging market equities can play important strategic and tactical portfolio roles.
Historically, emerging market equities have exhibited higher levels of volatility than developed market stocks. Investors should be aware of and comfortable with this higher risk profile when investing in emerging markets.
Portfolio applications for emerging markets
A strategic allocation to emerging markets can provide diversification benefits due to the asset class' low historical correlations to most traditional asset classes. Investors might consider emerging markets for a portion of their broader international exposure, or as a "satellite" asset class in a core/satellite approach.
Emerging market allocations may also be used tactically to capitalize on near-term opportunities in specific regions, countries or economic sectors.
Using ETFs for emerging markets for both strategic and tactical applications offers a number of benefits: chief among them being ease of access, liquidity, and cost efficiency.