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Buy iShares MSCI Emerging Markets

EEM

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What is EEM?

The iShares MSCI Emerging Markets ETF was launched in the spring of 2003 to harness the inherent growth opportunities associated with developing countries.

It replicates the MSCI Emerging Markets index comprising some 1,000-plus mid- and large-cap companies.  Emerging countries include: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

EEM tracks some 800 stocks. As an exchange-traded fund, it trades like a stock. Its assets are in excess of $26 billion. Two giant Chinese companies, Alibaba (BABA) and Tencent (700), account for 13% of holdings. In fact, roughly 40% of EEM is weighted to China, mainly technology. The Chinese weighting has been rising over the past two years as MSCI adds more “A-shares” of China-listed companies. 

Critics point to the Chinese domination of the composition (at the expense of Brazil and Russia) as well as a conspicuous allotment to South Korea (which is not included in S&P’s EM Index).

Since inception, EEM’s share price has produced an average annualized return of 10%. 

For the first three quarters of 2020, the ETF was well on pace to hit or exceed that mark, although for the ten-year period ending Sept. 30, EEM was only up about 3% per year on an annualized basis. 

What is the price of EEM? 

At roughly $49 per share (as of mid-November 2020), EEM is up 10% over the prior 12 months.

Most online brokerages offer the ETF at zero commission. BlackRock collects an annual 0.68% management fee, or $68 per $10,000.

Many analysts are bullish on emerging markets stocks, generally, with the role of large Chinese technology companies expected to continue to expand. As always, short-term volatility is possible. 

The case for emerging markets remains bullish. Valuations are relatively attractive, with many components trading below the highs reached at the start of 2020 before the Covid-19 outbreak. Morgan Stanley global emerging market strategists have said emerging markets assets are looking like a buy opportunity, citing valuations and the outlook for a better economic backdrop in 2021.

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This article is for informational purposes only and takes no account of particular personal or market circumstances, and should not be relied upon as investment, tax, or legal advice. For investment, tax, or legal advice, and before taking any action you should consult your own advisors. Note that assets such as equities present unique risks for investors.

This content is correct as of October 2020

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