Get Emerging Markets Exposure With This ETF

By Casey Murphy | Updated July 28, 2014 AAA

Comments about substantially stretched stock valuations from Janet Yellen on July 21, 2014 spooked the market and sent prices of the major U.S. indexes lower. When volatility in the U.S. market increases, it is often a natural reaction to look at pulling money out of U.S. equities. In many cases, traders reactively put their money to work in other areas of the world that experience better-than-average growth, like emerging markets.  For this reason, we’ve chosen to take a look at the Vanguard Emerging Markets VIPERS (VWO). As the name suggests, this ETF seeks to track the performance of a basket of companies that are located in emerging market countries. Taking a look at the chart below, you’ll find that this ETF has risen more than 7% over the past three months and it is currently trading near its 52-week high. (For more, check out Should You Invest In Emerging Markets?)

we’ve chosen to take a look at the Vanguard Emerging Markets VIPERS (VWO).

Looking at Components

For traders who want to diversify their holdings outside of the U.S., it is a good idea to check out the components of VWO for interesting picks. The top holdings of the fund are shown in the table below and these choices make ideal selections for traders looking to trade the emerging markets.

Company (Ticker)

Weighting (%)

Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)

2.9

Tencent Holdings Ltd. (TCTZF)

2.0

Petroleo Brasileiro SA

1.7

China Construction Bank Corporation (CICHY)

1.5

China Mobile Ltd. (CHL)

1.4

Looking To Semiconductors For Growth

As the internet of things continues to take hold, semiconductors continue to play an ever increasing role in our everyday lives. The long-term growth prospects for this sector are very lucrative and there are few companies with the cost structure of TSM. For those of you who don’t know, TSM is engaged in manufacturing, selling and packaging integrated circuits and many types of semiconductor devices on a very large scale. As you can see from the chart, the stock has had an amazing run over the past five years with gains of more than 100 percent. Recent weakness is being looked at by many traders as a reversion to the mean and could be an ideal time for long-term traders to take a position. You’ll see that the price has historically been able to find support near the 200-day moving average, but it hasn’t bounced off this level as nicely as many of its large-cap U.S. counter parts. Stop-loss orders should be set below the 200-day moving average, but some room should be given due to the emerging markets' nature of inherent volatility. (For more, see Semiconductors Conduct A Comeback)

TSM is engaged in manufacturing, selling and packaging integrated circuits and many types of semiconductor devices on a very large scale.

The Bottom Line

With recent comments on stretched stock valuations by Janet Yellen, it is a natural reaction for active traders to look overseas for growth. In many cases, checking out the components of major emerging markets ETFs such as the Vanguard Emerging Markets VIPERS can provide valuable insights for those looking to develop a watch list. As discussed above, you’ll find that Taiwan Semiconductor Manufacturing Co. Ltd.(TSM) had a tremendous run over the past five years. Generally speaking, it is very uncommon to see companies with market caps of more than $50 billion double in value over five years. Luckily for TSM investors, there aren't major technical signals showing this trend will reverse any time soon. (For more, check out The Advantage Of Intermarket Analysis)

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