Rising interest rates could translate into a stronger greenback, which typically spells doom for emerging markets (EM). That’s why it’s helpful to get some built-in volatility protection with ETFs like the Invesco S&P Emerging Markets Low Volatility ETF (EELV).
The EM market, in particular, comes with its own set of nuances that a prospective investor should be aware of before diving in. While they present a value-added growth option, investors need to tread lightly, and one way is to get exposure to low-volatility EM equities.
It’s already been tough going for emerging markets, especially in the wake of the pandemic. Certain countries were able to respond favorably to the pandemic while others faltered amid the pressures on their respective economies.
“Whether emerging economies have already done enough to pre-empt the global central bank tightening cycle may dictate whether investors in them can escape yet another dire decade,” a Reuters article says. “With everyone braced for the U.S. Federal Reserve’s first post-pandemic interest rate rise next month, clouds appear to be gathering over emerging economies once again.”
Under the Hood of EELV
The fund seeks to track the investment results of the S&P BMI Emerging Markets Low Volatility Index. S&P Dow Jones Indices LLC compiles, maintains, and calculates the underlying index, which is designed to measure the performance of 200 of the least volatile stocks of the S&P Emerging Plus LargeMidCap Index.
EELV is up 14% within the past year, highlighting the recovery amid a global vaccination move in 2021. As such, the fund is capable of capturing the upside while limiting the downside should a stronger dollar add an extra dose of volatility.
Market analysts are already seeing an EM environment where they’re no longer dependent on developed countries. This further supports the case for EM as a viable growth option.
“Emerging markets are breaking away from their dependence on the developed world,” said Columbia Threadneedle’s head of global emerging equities Dara White.
“Investors should now be looking at emerging markets through a different lens,” White added.
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