ETF Strategist - Fixed Income

If Not Now, Then Later for Emerging Markets

Mark McLaughlin,|Special to

Sometimes the difference between half empty and half full is a matter of timing.

In April, some emerging markets analystswere worried that the 2011-2012 rebound in the asset group made valuations unattractive. They turned out to be right in May when the latest flaring of the EU debt crisisprompted a flight to safety to such assets as theUS dollarand US Treasurys.

Nevertheless, the same group is confident that outstanding economic fundamentals, including GDP rates two- to three- times higher than developed markets, low debt levels, positive trade balances, and growing domestic consumption leave developing markets very well positioned in the medium and long term.

If you feel the same way, a broadly diversified ETF like Vanguard MSCI Emerging Markets  is a cost efficient way to participate in the many positive factors supporting EM countries and companies.

Strong balance sheets and a growing demand for financing also make emerging markets bonds attractive and can provide U.S. investors higher yields than those available in developed markets.

ETFs investing in bonds denominated in US dollars, such as iShares JP Morgan USD Emerging Markets Bond Fund, eliminate foreign currency risk from the equation.

The strength and maturity of some EM companies is enabling them to pay healthy stock dividends, whose income can offer investors a cushion should volatility pick up in the next year.

Sideways Fixed-Income Portfolio