Volatility and emerging markets equities are often thought to go hand in hand. After all, the widely followed MSCI Emerging Markets Index has a three-year standard deviation of 16.4 percent compared with just 10.3 percent on the S&P 500. These days, emerging markets stocks and the related exchange-traded funds (ETFs) are betraying their reputations for volatility. Data suggest that volatility in the Vanguard FTSE Emerging Markets ETF (VWO), the largest developing world ETF by assets, is ebbing.

"Expected price swings in the Vanguard FTSE Emerging Markets exchange-traded fund, the biggest of its kind with about $62 billion in assets, have fallen to an unprecedented 10.1 percent compared with a five-year average of 18.6 percent," reports Bloomberg. "That follows a 26 percent gain for the ETF this year as investors poured $8 billion into the fund." (See also: ETFs: The No. 1 Emerging Markets Fund.)

Up 5.4 percent over the past month, VWO is one of this year's most prolific asset-gathering ETFs. Year to date, VWO has added $8 billion in new assets, a total surpassed by just one other emerging markets ETF and just seven ETFs overall. Dwindling volatility is not commonplace among emerging markets stocks and funds. Even Vanguard warns that VWO "has high potential for growth, but also high risk; share value may swing up and down more than that of stock funds that invest in developed countries, including the United States."

Making VWO's declining volatility all the more interesting is that the ETF does not feature exposure to South Korea, historically one of the least volatile emerging markets. VWO tracks a FTSE index, and that index provider classifies South Korea as a developed economy, whereas the MSCI Emerging Markets Index includes Asia's fourth largest economy. China and Taiwan combine for almost 48 percent of VWO's weight. India and Brazil, historically two of the more volatile emerging markets, combine for 22.1 percent of the fund's weight. (See also: With Emerging Market ETFs Rising, Remember the Differences.)

Over the past three years, VWO has had average annualized volatility of 19.2 percent and a compound annual growth rate (CAGR) of 3.3 percent. Its maximum drawdown during that span was 34.7 percent compared with 23 percent for the MSCI EAFE Index. "Developing-economy stocks have climbed to a six-year high, and valuations are at levels last seen in January 2010, indicating traders aren't concerned about the impact of higher interest rates," according to Bloomberg. (See also: Fees Matter With Emerging Markets ETFs.)

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