2024-04-04 07:44:48 ET
Summary
- VWO ETF has underperformed US and global equities in the past decade due to the decline of emerging markets. Investors were sold a growth story that did not materialize.
- I believe the Fund will continue to underperform in the future because emerging markets tend not to be shareholder-oriented and they carry a high political risk.
- Emerging markets are full of potential growth stories, but opting for a diversified Emerging market ETF like VWO won't give you sufficient exposure to these opportunities.
- A preferable strategy is to invest indirectly in Emerging Markets via US stocks or opt for cherry-picking, accepting a higher risk.
The Vanguard FTSE Emerging Markets Index Fund ETF (VWO) follows the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. It charges a low fee of 0.08% and manages over 100 billion USD. It's an affordable option for investing in emerging markets, particularly in the 'BRICS' countries (Brazil, India, China, South Africa and, until 2022, Russia), which make up more than half of the fund. According to Vanguard's own product statement , the VWO ETF is "only appropriate for long-term goals."
VWO lacks a credible growth story
VWO was introduced in the mid-2000s, aiming to let investors capitalize on the growing interest in emerging markets. Unfortunately, it hasn't met these expectations. I don't see this trend of underperformance changing anytime soon....
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For further details see:
VWO: An International Investor's Perspective On Avoiding Emerging Markets