ETF Expert

U.S stocks have hit fresh 10-week lows. In fact, the S&P 500 has pulled back -6.8% from its recent closing high on June 11.

With the correction of the U.S markets becoming increasingly clear by the day, many "green shoot" believers are more concerned about the well-being of emerging markets. After all, the consensus seems to be that… while "emergers" were the last into the muck… they're going to be the first out.

One of the first things that is noticeable is the reduced risk associated with investing across all emerging markets. Not only is SPDR S&P Emerging Markets (GMM) performing better than 3 of the 4 identified regions, but Vanguard Emerging Markets (VWO) is also down less at -8.8%. More often than not, diversifying across an entire segment like emerging stocks leads to better risk-reward outcomes than choosing individual countries, or even regions.

Next, the unruly 20% slide for SPDR S&P Emerging Europe (GUR) is a direct result of a 50% energy weighting. In fact, GUR has a 20% weighting in Gazprom, Russia's gigantic oil enterprise. In effect, most of the downside activity here is a direct result of crude oil's move from the high $70s per barrel to the low $60s per barrel.

In complete contrast, SPDR S&P Emerging Middle East/Africa (GAF) has negligible exposure to energy at about 5%. The fund is primarily tilted 60% towards materials, financials and telecom of South Africa, with the Middle East exposure directly corresponding to Israel's Teva Pharmaceuticals. (Note: I once called this fund the South Africa/Israel Fund because the actual name is deceptive.)

In essence, the take-away here is two-fold. First, the -8.5%/-8.8% drop for emerging markets as a whole is not extreme. Adjusted for beta risk, with the S&P down -6.8%, the emerging market drop may even be on the light side.

Second, trying to ascertain which emerging region will out-duel another is likely an exercise in futility… especially over more significant lengths of time like 5 and 10 years. Granted, my heart, mind and educational experience all scream, "Emerging Asia" with an investment like SPDR S&P Emerging Asia Pacific (GMF). Yet I can't deny the greater likelihood over an entire decade that a more diversified Vanguard Emerging Markets (VWO) should come out ahead.

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "LIVE", via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.