Diversify market performance away from falling China stocks
As China stocks continue to slide, investors will want to make sure their investments in emerging markets are diversified away from the country.
China’s shares have been under pressure due to the weak yuan and investors’ optimism about the world’s second largest economy. In the weeks following officials’ stimulus policy and promises to energize the economy, China’s economy has shown clear signs of a slowdown.
Since investors want to avoid consequences, it is important that investors understand how exposed their portfolios are to China.
It is important to note that investors may downplay China but maintain their exposure to emerging markets. like fund Hartford Multifactor Emerging Markets ETF (ROAM)., Underweight compared to category peers like mega-cap tech and China iShares MSCI Emerging Markets ETF (EEM)The Vanguard FTSE Emerging Markets ETF (VWO)The SPDR Portfolio Emerging Markets ETF (SPEM)And this Schwab Emerging Markets Equity ETF (SCHE).
What impact does China’s underweighting have on performance?
ROAM’s underweighting towards China has led the fund to outperform its peers last month as China stocks have struggled. While the MSCI China Index is down 5.7% over the past one-month period, ROAM has been fairly flat with a decline of only 0.9%.
See More: “ROAM outperforms EEM by 7.4% YTD, limits losses”
It may seem that the easiest way to avoid losses for China stocks is to divest from emerging markets altogether. However, investors will miss out on some attractive profits and diversification benefits.
Broad emerging markets ETFs have been struggling over the past month. However, looking back at the past year highlights the value emerging markets can add to an underweight China portfolio.
ROAM has climbed 12.8% over the past one-year period, increasing the portfolio’s total returns and diversification. Specifically, during the same period, the MSCI China Index declined by 5.4%.
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Source: www.etftrends.com