Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some large-cap emerging-market stocks to your portfolio but don't have the time or expertise to hand-pick a few, the SPDR MSCI EM 50 ETF (NYSEMKT: EMFT ) could save you a lot of trouble. Instead of trying to figure out which large-cap emerging-market stocks will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on large-cap emerging-market stocks, sports a relatively low expense ratio -- an annual fee -- of 0.5%. It yields about 3%, too. The fund is very small, though, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has significantly underperformed the world market, but it's really too young to offer a track record one can assess. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why large-cap emerging-market stocks?
Emerging markets rightfully draw the attention of many investors because they can offer greater growth rates than developed nations as their economies grow. Large-cap emerging-market stocks are particularly compelling because their size reflects a history of success, and they often pay dividends, too.
Many large-cap emerging-market stocks experienced some tough times over the past year, though many look primed for growth. Brazilian mining giant Vale (NYSE: VALE ) , for example, dropped 24%. It has been focusing its explorations in Peru, Canada, Australia, and Brazil, and concentrating on its most promising opportunities, such as iron. At the same time, Vale has been cutting costs aggressively, reducing its investments, and selling assets. It also recently took advantage of a chance to cut billions from its $16 billion tax obligations to Brazil, but it's challenging some obligations, too. Demand from China is a plus for Vale, and demand from India is worth watching, too. With a forward P/E ratio near eight, the stock seems attractive.
On the other hand, Petrobras (NYSE: PBR ) , an oil giant also based in Brazil, plunged 30%. It has been burdened with significant debt and has even added to its obligations in order to fund more offshore development. Petrobras has had to deal with governmental meddling in its business, such as gas prices set below Petrobras' costs. Bulls are hopeful that solid car sales in Brazil will boost Petrobras' business. Petrobras has a $237 billion investment program underway and expects to double its production in coming years. It's the biggest participant in a consortium that will engage in ultra-deepwater drilling off Brazil's coast. Still, Brazil's economy isn't growing briskly, and Petrobras' growth plans will require even more investment.
AmBev (NYSE: ABEV ) fell 11%. The South American brewer controlled by Anheuser-Busch InBev has struggled lately with Brazil's weak economy, but bulls are hopeful that the 2014 World Cup, hosted by Brazil, will drive more sales. (The 2016 Olympics will follow.) Analysts at Zacks downgraded AmBev from outperform to neutral last month. The company's third quarter featured earnings below expectations due to increased input costs and operating costs. Still, organic revenue grew 4%.
Other large-cap emerging-market stocks didn't do quite so poorly over the last year. America Movil (NYSE: AMX ) , the Mexican telecom giant led by billionaire Carlos Slim -- a perennial contender for the title of world's richest man -- gained about 3%. America Movil has taken on significant debt building its business and has been threatened by regulations aimed at dominant companies. In the U.S., its pay-as-you-go TracFone service has about 23 million subscribers, but growth slowed in the third quarter, though revenue surged 17% over year-ago levels. Bulls are hoping the company will buy Vodafone assets in India, which could greatly boost subscribership.
The big picture
If you're interested in adding some large-cap emerging-market stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies and make investing in them -- and profiting from them -- that much easier.
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