When it comes to opportunities for Canadians this year, there aren’t any that are perhaps as good as emerging markets. It’s not just Britain and the United States of the world recovering after a downturn, after all. And because of this, emerging markets are also a recovering area that could yield massive returns after a larger drop. With that, let’s get into why emerging markets should be on the radar of pretty much every Canadian and a way to invest safely.
Why emerging markets
Emerging markets often exhibit higher economic growth rates compared to developed markets. Countries like India, Brazil, and China continue to show robust gross domestic product (GDP) growth, driven by industrialization, urbanization, and increasing consumer demand.
Furthermore, investing in emerging markets can provide diversification benefits to a Canadian investor’s portfolio. These market assets are often undervalued compared to their developed market counterparts, and in some cases, the currencies of emerging markets may be undervalued relative to the Canadian dollar.
So, where do investors start looking? Many emerging markets are significant consumers of commodities, which can drive up prices and benefit Canadian resource companies. This interconnectedness can provide indirect investment opportunities for Canadian investors through domestic companies with strong ties to emerging markets. But you can gain access to them all through one investment method.
Consider ETFs
Advances in technology and financial markets have made it easier for investors to access and invest in emerging markets. Exchange-traded funds (ETFs) and mutual funds focusing on these regions provide Canadian investors with diversified exposure to high-growth markets. But where should you invest?
A good ETF on the TSX that Canadian investors should consider for exposure to emerging markets is iShares MSCI Emerging Markets IMI Index ETF (TSX: XEC). XEC ETF provides exposure to a wide range of companies across multiple emerging markets, including China, India, Brazil, and South Korea. This diversification helps mitigate risks associated with individual countries.
The ETF includes a mix of large-, mid-, and small-cap companies, offering a balanced approach that captures the full breadth of the emerging markets landscape. This mix allows investors to benefit from the growth potential of smaller companies and the stability of larger firms. Furthermore, emerging markets are known for their high growth potential, driven by factors such as rapid urbanization, increasing consumer demand, and economic reforms. XEC is designed to capture these growth opportunities.
If you’re worried about the cost, XEC ETF has a competitive expense ratio, making it a cost-effective way for investors to gain exposure to emerging markets. Lower fees can enhance overall investment returns over time, and XEC is currently at 0.26%. The ETF also provides a dividend yield, adding an income component to the investment. Dividends from emerging market companies can contribute to total returns, especially in a high-growth environment.
Bottom line
With 2,500 companies on hand, significant assets under management, a low expense ratio and a 2.02% dividend yield, XEC ETF is a strong choice — especially as shares are up 11% year to date. So, consider this ETF if you’re looking for higher returns throughout 2024.
