Emerging Markets Funds-Emerging Markets etf

As in everything in life there are always pros and cons. Investors in the BRICs ( Brazil-Russia-India-China), the main constituents of the MSCI emerging markets, are sitting with huge open trade profits. One can easily look at the enhanced return one would have received this year if they had purchased virtually anything that was based in the Euro currency.

They would have earned for themselves an additional 12% just because of the currency. Not bad huh! But what would have happened if the US dollar that everyone seems to hate, from beautiful models to rappers and other Harvard graduates, does something that no one expects…it strengthens??? As a long time investor as well as a contrarian, I believe anything can happen, I prepare for that and know that in most cases the crowd is wrong.

It seems that many investors have let the weak dollar dictate their investment strategy. Depending on the country, currency or the timing, risks can amplify as opposed to being diminished. One needs to be aware that currency risk can erode returns as well. A very important fact is can be very hard to hedge currency risk.

Many international markets have produced higher average returns granted, but also with much higher volatility. One example is TRF – Templeton Russia Fund.

The Templeton Russia Fund went from in 1996 from approx $12 to a high of $65 in mid 1997…then crashing back down to below $10 in Oct of 1998 with the Russian Debt crisis & emerging market meltdown. Wouldn’t it have been nice to purchase somewhere near the lows with diminished risk. What transpired in Russia is common to many emerging markets and emerging market etf. High returns –High volatility.

My suggestion as opposed to try to chase returns as so many has done with the BRICs (Brazil- Russia-India-China) is to wait until there is a correction. Wait to buy value. Your risk will be vastly diminished and your returns potentially greatly enhanced. Market history is full of past situations that patient investors have made tremendous returns. One can look at Korea, another emerging market. From the lows in 2001 one could have 7 times their money or TRF (Templeton Russia Fund) almost 10 times. My perspective is to be a value investor (as well at times is a trader). In this fashion one mitigates the risks and opens oneself for extra-ordinary returns. Historically too many times emerging markets haven risen parabolic ally and crashed back down destroying accounts.

Another thought one might consider in regard to International investing is the fact that many US companies such as McDonalds, Proctor & Gamble, Nike, GE, Alteria and many more have exposure to both emerging markets & mature markets. They can fill the niche for international investments while still investing in mainstream companies as opposed to emerging markets etf.

As well for better or worse they are denominated in US dollars which give stability. Again however as a value investor many of the US consumer conglomerates are not at Warren Buffet type of prices. Have a plan and do not chase high risk ideas. Andrew Abraham andrabr9@gmail.comHttp:/www.AbrahamBedick.comHttp://capitalinvestor1836.blogspot.com/

Tags: emerging market funds, emerging markets, emerging markets etf, emerging markets fund, msci emerging markets

This entry was posted on Monday, November 16th, 2009 at 2:39 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.