In America, the consumer drives a large portion of its economy, and when demand for goods and services dips, it has huge ramifications on the entire economy. In emerging markets, the consumer is becoming a larger part of the growth story, as the middle class continues to grow.
Investors wanting to participate in the emergence of the baby boomer have several options, ranging from niche ETFs to individual stocks. As in most cases, an ETF will lower risk due to its diversification into a basket of stocks. This may be even more true when it comes to a niche sector, such as the emerging market consumer. (For more, see How To Pick The Best ETF.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Using ETFs
The EG Shares Emerging Markets Consumer (ARCA:ECON) is a basket of 30 stocks that are based in emerging market countries around the globe. Mexico (19%), Brazil (18%), South Africa (16%) and India (13%) make up the majority of the allocation. The sector breakdown is diverse, with beverage stocks, general retailers, food producers and automobiles at the top of the list.

Since ECON began trading on Sept. 14, 2010, the ETF is up 19% versus a gain of only 1% by the iShares Emerging Market ETF (ARCA:EEM). The outperformance is large, considering the short time frame. However it is important to note that so far in 2012 EEM is up 15% versus a gain of 11% by ECON. The ETF charges an expense ratio of 0.85% and the dividend yield on the index is 1.82%.

EG Shares also offers two similar consumer ETFs that concentrate on the emerging markets. The EG Shares Consumer Services GEMS ETF (ARCA:VGEM) concentrates more on the retail and media sectors, with heavy concentration in South Africa and Mexico. The EG Shares Consumer Goods GEMS ETF (ARCA:GGEM) has a bigger concentration on food products, beverages and autos, with India and Brazil as it two largest countries. Both ETFs charge a 0.85% expense ratio.

Individual Stocks
Brazilian Distribution (NYSE:CBD), a Brazil-based operator of supermarkets and department stores, recently broke out to a new six-month high. The stock will benefit from a growing middle class in Brazil, as well as the influx of tourists that are set to arrive in the coming years for the World Cup and Olympic events. With a PEG ratio of 1.5 and a recent breakout, the stock looks poised to continue its current rally.

Another stock to recently breakout out is Mexican Economic (NYSE:FMX), which is a supplier of beverages throughout Latin America and owns the OXXO chain of convenience stores. With FMX sitting at an all-time high, it is not the best time to chase the price. However, a pullback to support near $71 could be the next big buying opportunity. The stock pays a 1.4% dividend and trades with a PEG ratio of 1.9.

The Bottom Line
Investors that are contemplating investing in the emerging market must realize that above average volatility will accompany any purchase. At the same time, the growth prospects for the emerging market countries, and more specifically, the consumer, are well above average. The reward-to-risk ratio appears to be in favor of the bulls at this time. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center