New Active Emerging Market ETF Hits Market

The issuer Avantis launched its first fund via American Century’s exemptive relief, per etf.com. The name of the fund is Avantis Emerging Markets Equity ETF AVEM, which is actively managed and takes a factor-based approach.

Below we highlight the fund in detail.

Inside AVEM

The fund gives exposure to a diverse group of companies related to emerging markets across market sectors, industry groups and countries. The fund may invest in companies of all market capitalizations.

“Securities of companies that it expects to have higher returns relative to other securities by placing an enhanced emphasis on securities of companies with smaller market capitalizations and securities of companies it defines as high profitability or value companies,” per the prospectus. The fund charges 33 bps in fees.

How Does It Fit in a Portfolio?

This ETF is appropriate for investors seeking broad exposure to the emerging equity markets (EM). Emerging markets have long been investors’ choices due to their high growth potential and rapid pace of industrialization. Many emerging markets have embarked on rate cuts of late, which should propel the bloc’s growth prospects in the near term (read: Turkey ETF Beats S&P 500 in the Past Month: Here's How).

However, investing in an emerging market demands a steady appetite for risk as these volatile markets are highly sensitive to external shocks. Investors should note that some EM economies are facing stagflation, which can go against the fund. Also, the U.S. has intensified its trade war with China. Though trade tensions have eased a bit lately, no sign of a resolution is in sight as yet (read: Sino-US Trade Tension Softens: ETFs in Focus).

There was a steep selloff in May due to sudden escalation in trade tensions. Also, investors should note that the emerging market bloc, especially the Latin American segment, faces a lot of political uncertainty. This can go against the fund at times.

However, markets recovered in the June-July period on hopes of global economic stimulus. The ongoing Fed policy easing in 2019 may keep the greenback subdued, which could be a tailwind for the EM block (read: 5 ETF Zones to Watch Ahead of Fed Meeting).

Competition

The space is teeming with products. The largest fund in the space is Vanguard FTSE Emerging Markets ETF (VWO) with about $62.6 billion. This follows funds like iShares Core MSCI Emerging Markets ETF IEMG with about $55.3 billion and iShares MSCI Emerging Markets ETF (NYSE:EEM) EEM with about $25.6 billion in assets. Notably, VWO, IEGM and EEM are passive and charge 12 bps, 14 bps and 67 bps in fees, respectively.

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