ETFs: The No. 1 Emerging Markets Fund (VWO)

The VWO ETF is ideal for investors looking to target emerging markets (EM) as it focuses primarily on nations that include India, Brazil, China, and South Africa. Because of accelerated growth economies in developing countries can experience, major investors often seek exposure to these broader markets instead of investing in companies that may not have market-wide dynamic growth potential. The so-called Vanguard FTSE Emerging Market ETF (VWO) tries to capture this potential for higher returns. (See also: The Top Vanguard Emerging Market ETF.)

With a traditional weighting that has long since favored financial service and technology sectors, VWO has become the standard for ETFs that target EM. VWO also has significant percentages of its holdings invested in telecommunications as well as energy. Additionally, VWO shares can be traded on many platforms without any commission fees. VWO is listed on both the NASDAQ and the NYSE. The ETF was launched in March 2005 and as of Sept. 06, 2016, VWO had asset volume of about $42,198 million. The fund features an expense ratio of .15% and is overseen by the Vanguard Group. In terms of geographical allocation, VWO has a major focus on the Asia Pacific region (ca. 54.18%), followed by Central Asia (ca. 12.20%), South and Central America (ca. 10.81%), Africa/ Middle East (ca. 9.42%) and Eastern Europe (ca. 7.28%). (Bloomberg databases)

Performance Update

As indicated by Vanguard, VWO has both a high growth potential as well as a high risk due to its volatility. Share values have swung up and down at greater margins than funds focused on developed markets. Since the inception of VWO in March 2005, the fund has posted an average annual return of 5.97% (represents changes to net asset value) through Aug. 31, 2016.

Here is the ETF's performance since 2010:

Performance 2010: 19.46%

Performance 2011: -18.75%

Performance 2012: 19.20%

Performance 2013: -4.92%

Performance 2014: -0.07%

Performance 2015: -15.81%

The current year-to-date total return is positive at 19.49%, as of Sept. 06, 2016. (Bloomberg databases)

The Bottom Line

Due to the volatility that comes with targeting EM, VWO naturally offers a greater potential for growth as well as a greater risk than ETFs focused on companies within developed markets. For this reason, VWO cannot be recommended to any investor type looking to build long-term growth. Nevertheless, VWO is the largest U.S.-traded Emerging Markets ETF and provides an interesting as well as liquid investment option for prospective investors seeking to increase exposure to EM countries.

By Daniel Jark

Source: http://www.investopedia.com/news/etfs-no-1-emerging-markets-fund-vwo/