When it comes to investing, it’s hard to do better than exchange-traded funds (ETFs). These funds boast high diversification, high liquidity and low fees. As a result of having these powerful characteristics, ETFs tend to outperform individual stocks and hedge funds over the long term.
If you’re an individual investor, you’d probably benefit from having all or at least the majority of your portfolio in ETFs. With that in mind, here is one ETF that I am holding this year, that I plan on never selling.
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Vanguard FTSE Emerging Markets All Cap Index ETF
Vanguard FTSE Emerging Markets All Cap Index ETF (TSX: VEE) is a Canadian exchange-traded fund built on emerging market stocks. “Emerging markets” are markets that are less developed than the big Western markets and Japan. Examples include the following:
- China
- India
- Brazil
- Thailand
- Mexico
- Turkey
These markets are as large as many Western markets, but much cheaper (as in having a lower ratios of price to earnings, book value, cash flows etc). The reason they are cheaper is because they are overlooked by big U.S. and European funds, whether due to simple ignorance or fund managers being slightly mistrustful of EM governments.
Despite the perceived “issues” with emerging markets, they offer very good returns in some cases. China’s Hang Seng index outperformed the S&P 500 last year. Taiwan is home to some of the world’s most important tech companies. India’s Nifty Fifty index has been delivering solid returns over the last five years. All of these markets offer a lot to investors, and in many cases, they are far cheaper than their Western counterparts.
What VEE holds
Vanguard FTSE Emerging Markets All Cap Index ETF holds a number of stocks from various emerging markets, including the following:
- China
- Taiwan
- India
- South Africa
- Brazil
- Saudia Arabia
- Mexico
These countries are among the cheapest and fastest growing, and they boast some truly stellar names:
- Alibaba, the world’s largest e-commerce company by gross merchandise volume and Asia’s artificial intelligence leader.
- Tencent, the world’s biggest gaming company.
- Taiwan Semiconductor Company, maker of 60% of the world’s computer chips, and 90% of the most advanced chips.
- And many more.
VEE companies are some of the most advanced, fastest growing and cheapest out there. It’s a truly enticing combination, lending itself to a strong case for investing in VEE.
Basic fund characteristics
Having established that VEE holds stocks in some very interesting markets, it’s now time to look at the fund’s basic characteristics such as fees, liquidity, etc.
First off, the fees. VEE has a 0.25% management fee, which is a little on the high end for a Vanguard fund, but lower than average for all ETFs. It’s likely that Vanguard charges a higher fee on this fund due to complexity associated with buying stocks across many different jurisdictions with different rules — India in particular is known to be a finicky market.
Second, the fund has a 2.17% dividend yield, which is about the same as the TSX.
Third and finally, the fund has a 0.042% bid-ask spread. This is a little wider than some funds I’ve looked at, and maybe too high for day trading purposes. But for long-term holders, it’s not a problem.
Foolish bottom line
The bottom line on VEE is that it’s a well managed ETF investing in some of the world’s youngest up-and-coming markets. The potential returns are considerable.
