Which EM fund?

Jeems

I'd like to add an EM fund to my small portfolio.

I've narrowed it down to either Fidelity Index Emerging Markets or Blackrock Emerging Markets Equity tracker although open to other suggestions.

Price wise they are quite similar (0.23 vs 0.24) and performance wise since 2014 when Fidelity launched, the funds are also a close match.

The main difference I see is that Blackrock have little or no holding in Samsung and South Korea, whereas it is the biggest holding/country exposure in Fidelity. They also have 13% in cash which I'm unsure about.

Fidelity also have 6.52% in the US, which I'm not quite sure why - could someone explain this to me?

At the end of it, is a case of do I want any exposure to Samsung / South Korean holdings? What else is there to consider?

Many thanks!

JohnRo

Regarding US exposure.

Global companies are generally listed on large stock exchanges in developed market countries, the reasons ought to be obvious.

That doesn't mean the listing in a particular country is also the place where said company conducts the bulk of it's everyday business.

Voyager2002

Personally, I would use different funds for different areas of the (developing) world. The knowledge base and skill-set (and personal contacts) required for success in Russia would be totally different from that needed for India; different again for Southeast Asia... not to mention Africa and Latin America. At the very least, ensure that there are distinct and appropriately skilled management teams for each major region, and that you are happy with their allocation between regions.

Malthusian

Voyager2002 wrote: »

Personally, I would use different funds for different areas of the (developing) world. The knowledge base and skill-set (and personal contacts) required for success in Russia would be totally different from that needed for India; different again for Southeast Asia... not to mention Africa and Latin America. At the very least, ensure that there are distinct and appropriately skilled management teams for each major region, and that you are happy with their allocation between regions.

This would be a very helpful response if the OP was trying to pick between two actively managed emerging markets funds, but they are picking between two different passive emerging market index funds. There are no management teams, and no personal knowledge or contacts involved in stock selection.

Since the OP has made the decision to invest in emerging markets and has decided they want their exposure to be via a passive fund, it comes down to whether they think that the MSCI Emerging Markets Index (Fidelity) is a better representation of the emerging markets asset class than the FTSE Emerging Index (BlackRock).

It is a classic illustration of the passive funds paradox - by deciding you want a passive fund you are saying that you don't want management decisions involved in your stockmarket exposure, since management decisions cost money and there is no evidence they add to your return. But deciding that you want passive funds is itself a management decision and selecting a particular passive fund is also a management decision. Drilling down into the underlying holdings by country and trying to decide how much South Korean exposure you want is very definitely a management decision, the kind of decision that picking a tracker fund covering the emerging markets sector is supposed to take out of your hands.

Personally, I'd flip a coin.

jamei305

They track different indicies - Blackrock tracks the FTSE Emerging whereas Fidelity tracks the MSCI Emerging. So you could read about those and compare their performances etc first. Then compare the two funds with other funds that track the same index e.g. Vanguard also tracks the MSCI Emerging, Legal & General tracks the FTSE Emerging

bowlhead99

Both of the managers you mention are more than capable of tracking an index using physical replication and at low cost. As the others mentioned they are following different emerging markets indexes so will produce different results.

The most obvious way to make your decision is to look at what you are doing for the other part of your holdings. If you are using FTSE indexes such as FTSE World or FTSE Developed then you will already have Korea exposure within your "developed" part of your portfolio because FTSE consider it to be developed enough for inclusion in their developed world products. Whereas if you are using an MSCI developed world product like MSCI World, you will not have Korea exposure because they consider it emerging and not developed world.

If you are using a manually constructed portfolio or managed funds for your developed world exposure, then you might or might not already have Korea exposure, based on how you chose to construct it or what the investment manager saw fit to include, given his objectives.

Korea has a modern stock market with about $0.7 trillion of free float market capitalisation. Big famous names you've heard of include Samsung, Hyundai and LG and there are plenty of others more well known over in Asia. So, absolutely no need to exclude that country from your portfolio.

But similarly no need to double up. If you have Korea as a percent or two of your mainstream developed market investments, and you believe in trackers, no point also buying an emerging market tracker which is 15% Korea and 4% Samsung, doubling-up that exposure.

Personally I don't use trackers as my primary EM exposure, but if I did, I'd probably use them for my developed exposure too, so it would be pretty trivial to check out how much Korea I already had and ensure I didn't miss it or double it with my choice of EM fund.