How to get exposure to Quality EM Stocks?

[ukvalueinvestment]

I want to get exposure to "high quality businesses" in EM - something like Fundsmith but in EM.  Of course, Fundsmith have their own Emerging Markets Trust: https://www.feetplc.co.uk, however it's not cheap - annual management charge 1.25% - and it would also be good to evaluate what else is out there.  Essentially I want something I can buy and hold for 20 years, so if there are any tracker funds or indices  that track quality factors, I'd be very interested.

 

The other tranche of my effort to get long term EM exposure is to evaluate on a yearly basis which are "cheap" markets and allocate my money only to cheap markets with "good" corporate governance. 

 

So what publications are out there that show metrics in terms of which countries and regions are "cheap" and also which publications rank countries in terms of corporate governance and shareholder friendliness.  The idea would be that I allocate money every year, for ten years, to the cheapest markets which are in, say, the top 30 markets in the world in terms of corporate governance.  Thanks.

 

[sarganaga]

First Trust Emerging Markets Small Cap AlphaDex Fund (FEMS) is a factor based fund that tilts toward small cap, value, & momentum. This isn't quite the quality tilt you are looking for, but the momentum factor should weed out most of the value traps. I've held a fairly large position in this for several years in a retirement account and continue to add to it.

 

As per Morningstar http://portfolios.morningstar.com/fund/summary?t=FEMS&region=usa&culture=en_US some interesting metrics.

 

Management fees are .8% annually. They also have a larger cap fund FEM.

 

[TwoCitiesCapital]

First Trust Emerging Markets Small Cap AlphaDex Fund (FEMS) is a factor based fund that tilts toward small cap, value, & momentum. This isn't quite the quality tilt you are looking for, but the momentum factor should weed out most of the value traps. I've held a fairly large position in this for several years in a retirement account and continue to add to it.

 

As per Morningstar http://portfolios.morningstar.com/fund/summary?t=FEMS&region=usa&culture=en_US some interesting metrics.

 

Management fees are .8% annually. They also have a larger cap fund FEM.

 

+1 EYLD is a similar offering from Cambria that counts Meb Faber is a founder. It also uses a combination of value/momentum factors in getting smart-beta/passive exposure.

 

I also use PEFIX which is PIMCO/Research Affiliates smart/beta alpha/overlay. Essentially RA builds a smart beta EM index. The fund buys a Total Return Swap of that index and then PIMCO manages the collateral to beat LIBOR plus a spread.

There's a plain vanilla version that doesn't use the leverage/PIMCO collateral management - ticker PEIFX.

 

[CorpRaider]

VIGI could be an option for an ex-u.s. implicit quality tilt.  Got the vanguard cost advantage.  Not limited to EM tho.

[sarganaga]

First Trust Emerging Markets Small Cap AlphaDex Fund (FEMS) is a factor based fund that tilts toward small cap, value, & momentum. This isn't quite the quality tilt you are looking for, but the momentum factor should weed out most of the value traps. I've held a fairly large position in this for several years in a retirement account and continue to add to it.

 

As per Morningstar http://portfolios.morningstar.com/fund/summary?t=FEMS&region=usa&culture=en_US some interesting metrics.

 

Management fees are .8% annually. They also have a larger cap fund FEM.

 

+1 EYLD is a similar offering from Cambria that counts Meb Faber is a founder. It also uses a combination of value/momentum factors in getting smart-beta/passive exposure.

 

I also use PEFIX which is PIMCO/Research Affiliates smart/beta alpha/overlay. Essentially RA builds a smart beta EM index. The fund buys a Total Return Swap of that index and then PIMCO manages the collateral to beat LIBOR plus a spread.

There's a plain vanilla version that doesn't use the leverage/PIMCO collateral management - ticker PEIFX.

 

I think Cambria's offerings are very interesting and we have owned GVAL a couple of times in my wife's retirement account. I also enjoy Meb's podasts quite a bit.

[Spekulatius]

It looks like FEMS has underperformed EEM and FEM (the large cap variant) has pretty much performed inline with EEM. What gives?

[sarganaga]

It looks like FEMS has underperformed EEM and FEM (the large cap variant) has pretty much performed inline with EEM. What gives?

 

My best guess is that while emerging markets have been out of favor, small and mid cap emerging have had almost no interest at all.

 

My main reason for holding FEMS instead of FEM (which I also like) is that rest of my indexed exposure to international is in VEU. FEMS has much less duplication with VEU than FEM. With the smaller cap emerging I also get, in general, more emerging domestic exposure. I also think smaller cap stocks face less exposure to U.S. sanctions than their larger cap brethern.

 

If I was told tomorrow that I needed to hold FEM  instead of FEMS, I wouldn't make too many squeaky noises.

[stahleyp]

First Trust Emerging Markets Small Cap AlphaDex Fund (FEMS) is a factor based fund that tilts toward small cap, value, & momentum. This isn't quite the quality tilt you are looking for, but the momentum factor should weed out most of the value traps. I've held a fairly large position in this for several years in a retirement account and continue to add to it.

 

As per Morningstar http://portfolios.morningstar.com/fund/summary?t=FEMS&region=usa&culture=en_US some interesting metrics.

 

Management fees are .8% annually. They also have a larger cap fund FEM.

 

+1 EYLD is a similar offering from Cambria that counts Meb Faber is a founder. It also uses a combination of value/momentum factors in getting smart-beta/passive exposure.

 

I also use PEFIX which is PIMCO/Research Affiliates smart/beta alpha/overlay. Essentially RA builds a smart beta EM index. The fund buys a Total Return Swap of that index and then PIMCO manages the collateral to beat LIBOR plus a spread.

There's a plain vanilla version that doesn't use the leverage/PIMCO collateral management - ticker PEIFX.

 

Interestingly PEIFX and PREFIX have almost identical returns (PEIFX has a little bit better return that is at least somewhat attributable to its lower expense). What made you decide on PEFIX instead? Over time you expect the leverage to outperform?

[TwoCitiesCapital]

First Trust Emerging Markets Small Cap AlphaDex Fund (FEMS) is a factor based fund that tilts toward small cap, value, & momentum. This isn't quite the quality tilt you are looking for, but the momentum factor should weed out most of the value traps. I've held a fairly large position in this for several years in a retirement account and continue to add to it.

 

As per Morningstar http://portfolios.morningstar.com/fund/summary?t=FEMS&region=usa&culture=en_US some interesting metrics.

 

Management fees are .8% annually. They also have a larger cap fund FEM.

 

+1 EYLD is a similar offering from Cambria that counts Meb Faber is a founder. It also uses a combination of value/momentum factors in getting smart-beta/passive exposure.

 

I also use PEFIX which is PIMCO/Research Affiliates smart/beta alpha/overlay. Essentially RA builds a smart beta EM index. The fund buys a Total Return Swap of that index and then PIMCO manages the collateral to beat LIBOR plus a spread.

There's a plain vanilla version that doesn't use the leverage/PIMCO collateral management - ticker PEIFX.

 

Interestingly PEIFX and PREFIX have almost identical returns (PEIFX has a little bit better return that is at least somewhat attributable to its lower expense). What made you decide on PEFIX instead? Over time you expect the leverage to outperform?

 

Yes. If I'm paying a management fee, I typically want it for something that I can't replicate myself.

 

I like the idea of using a swap with only 5-10% of the principal invested while using the remaining 90-95% to invest in fixed income to beat the LIBOR+spread on the swap. It's worked WONDERS for both the StocksPlus and StocksPlus long duration funds PIMCO runs using the same strategy in the U.S. I imagine that PIMCO is able to beat the spread in most years and the fixed income returns partly diversify the equity exposure with the same dollars.

[elliott]

FEMS

https://www.ftportfolios.com/retail/etf/etfsummary.aspx?Ticker=FEMS

 

According to the link above, FEMS is 31%Taiwan, 6% Hong Kong. Thats a big exposure to two countries which, well, should be the envy of many others.

Indeed, this is what Terry Smith says of Taiwan (and SK)

one might query the degree to which they are “emerging” since they have per capita GDP of $33,189 [south Korea] and $39,767 [Taiwan] respectively compared with $29,851 for Spain.

I fully agree with him.

 

In regards to Terry Smiths EM trust, ongoing charge is slightly higher, 1.50%. It certainly is not cheap, but is an active fund so I dont think its fair to compare it, fees wise, to index funds. I do not own this trust, though, because I do not like some of its holdings -at their current valuations at leas - so I will also be grateful if anybody can share some good active fund names operating in emerging (or frontier) markets.