Worries over high-interest rates continued to weigh on market sentiment after the minutes of the Fed’s July meeting showed that several policymakers were open to further rate increases to fight inflation. Yesterday, the stock market notched a three-day losing streak, with the Dow Jones dropping 0.84%. Meanwhile, the S&P 500 and the Nasdaq fell 0.77% and 1.17%, respectively.
Amid an uncertain macro environment, it could be wise to invest in robust emerging market ETFs Vanguard FTSE Emerging Markets ETF (VWO) and Global X Emerging Markets Internet & E-commerce ETF (EWEB) for portfolio diversification and solid returns.
In July, the consumer price index (CPI) rose 3.2% year-over-year, slightly below the 3.3% forecast but higher than June’s 3% and the first increase in more than a year. Core CPI, which excludes the more volatile food and energy prices, grew 0.2% for the month and was up 4.7% year-over-year, the lowest since October 2021.
The annual rate for the core CPI also landed below a Dow Jones consensus estimate of 4.8%. While inflation has come well off its 40-year highs of mid-2022, it is still well above the Fed’s 2% target. Moreover, Fed minutes released this Wednesday from the most recent meeting showed that Fed officials expressed concerns about the pace of inflation and said further rate hikes could be required.
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.
In addition to growing rate hike concerns, a Fitch Ratings analyst warned that US banking giants, including JPMorgan, could be at risk for a ratings reevaluation if the overall industry’s score gets hit with another downgrade.
In June, the ratings agency cut its “operating environment” score for banks to AA- from AA+, citing “downward pressure on the US sovereign rating, gaps in the regulatory framework and structural uncertainty around the normalization of monetary policy.” Also, earlier in August, Moody’s slashed the credit ratings on ten banks and warned that cuts could come for another 17 major lenders.
Amid enhanced macroeconomic uncertainty, Michael Burry, the “Big Short” investor, bet more than $1.6 billion on a Wall Street crash. Burry is using more than 90% of his portfolio to bet on a market downturn, according to Security Exchange Commission (SEC) filings.
Against this backdrop, adding the best-performing emerging market ETFs VWO and EWEB to your portfolio could be wise for greater diversification and solid returns.
Let’s delve deeper into the fundamentals of these ETFs:
Vanguard FTSE Emerging Markets ETF (VWO)
VWO is passively managed to provide comprehensive, vanilla exposure to the emerging markets equity space. It invests in stocks of companies with any market capitalization and operating across diversified sectors. The fund tends to attract longer-term investors. VMO tracks the performance of the FTSE Emerging Markets All Cap China A Inclusion Index.
With $72.29 billion in assets under management (AUM), VWO’s top holdings include Taiwan Semiconductor Manufacturing Co., Ltd. (TSM), with a 5.27% weighting, followed by Tencent Holdings Ltd. (TCEHY) at 3.64%, and Vanguard Cash Management Market Liquidity Fund and Alibaba Group Holding Ltd. (BABA) with 2.77% and 2.45% weightings, respectively.
The fund currently has 5,000 holdings in total, with its top 10 assets comprising 32.41% of its AUM. VWO has an expense ratio of 0.08%, considerably lower than the category average of 0.51%. Over the past three months, the fund’s net inflows came in at $495.74 million, and $3.15 billion over the past year. VWO’s NAV was $40.16 as of August 17, 2023.
VWO pays an annual dividend of $1.42, translating to a yield of 3.55% at the prevailing price level. Its four-year average dividend yield is 2.99%. Over the past five years, its dividend payments have grown at a CAGR of 5.3%. The ETF has paid dividends for 15 consecutive years.
The fund has gained 2.6% over the past nine months and 2.8% year-to-date to close the last trading session at $40.07. It has a beta of 0.69.
VWO’s POWR Ratings reflect this promising outlook. The fund’s overall B rating equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VWO has a B grade for Trade and Buy & Hold. Within the 100 ETFs in the B-rated Emerging Markets Equities ETFs group, it is ranked #19.
To access VWO’s rating for Peer, click here.
Global X Emerging Markets Internet & E-commerce ETF (EWEB)
EWEB provides exposure to exchange-listed companies positioned to benefit from the increased adoption of internet and e-commerce technologies in emerging market countries. The index provider, Nasdaq, and the Consumer Technology Association jointly design the eligibility, selection, and weighting of this fund’s underlying index.
EWEB tracks the performance of the NASDAQ CTA Emerging Markets Internet & E-commerce Index. With $2.70 million in AUM, EWEB’s top holdings include Alibaba Group Holding Limited (BABA) with an 8.17% weighting, Naspers Limited (NPN) at 7.76%, and followed by Meituan Class B and Tencent Holdings Limited (TCEHY) at 7.72% and 7.67%, respectively.
EWEB currently has 43 holdings in total, and its top 10 assets comprise 61.9% of its AUM. The fund’s inflows were $9.66 over the past three months and $365.42 over the past six months. In addition, EWEB’s 0.65% expense ratio compares to the 0.51% category average.
The fund has gained 9.3% over the past nine months and 3.3% year-to-date to close the last trading session at $21.81. Also, it has a beta of 0.42. The ETF’s NAV was $21.84 as of August 17, 2023.
EWEB’s fundamental strength is reflected in its POWR Ratings. The ETF has an overall rating of B, translating to a Buy in our proprietary rating system.
EWEB has a grade B for Trade and Buy & Hold. It is ranked #62 out of 100 ETFs in the same group.
Click here to access all the POWR Ratings for EWEB.
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VWO shares were unchanged in premarket trading Friday. Year-to-date, VWO has gained 3.43%, versus a 14.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
Vanguard FTSE Emerging Markets ETF (VWO) and Global X Emerging Markets Internet & E-Commerce ETF (EWEB): Buy, Hold, or Sell? StockNews.com
