COLUMN-How to deal with emerging markets volatility
By John Wasik
CHICAGO, Feb. 10 (Reuters) - Since the beginning of the year, emerging markets have been like cats on a hot tin roof.
Hot money is skittering out of foreign markets as countries from Argentina to Turkey have been clawed by economic and political turmoil. But even with heightened concerns about the prospects of developing countries, emerging markets should still be a part of your larger portfolio.
A combination of currency crises and the "taper" of the Federal Reserve's bond-buying program - possibly resulting in economic slowdowns - have triggered the exodus in emerging markets. More than $12 billion left emerging markets stock funds in January alone, according to EPFR Global, with bond funds in this sector losing nearly $3 billion last week alone.
While nearly every emerging markets fund has been nicked this year, some funds have been clobbered. The WisdomTree Brazil Real ETF lost 90 percent of its assets between Jan. 28 and 29.
A common strategy is to invest in countries that are not part of this rout. That means pulling money out of countries like Argentina, Brazil, Indonesia, Turkey and South Africa and moving into countries whose currencies are more stable. While that's easy for institutional investors or those holding country-specific exchange-traded funds (ETFs), it's awfully difficult for individual investors.
One consideration is to find a wider base of smaller, "frontier" countries that are not being impacted by the currency woes or the Fed's moves.
The iShares MSCI Frontier 100 ETF, for example, has 81 percent of its portfolio in Africa and the Middle East, with only 13 percent in Asian emerging markets and 4 percent in Latin America. It's up 1.4 percent year to date through Feb. 7 and gained almost 24 percent last year. It charges 0.79 percent in annual expenses. Continuación...