If you’re looking for an emerging market ETF then the best ETF could be Vanguard FTSE Asia ex Japan Shares Index ETF (ASX: VAE).
What is Vanguard?
Vanguard is a funds management business that is owned by its own investors. It was founded in 1975 and now has (or had) around AU$9.7 billion. It has 192 funds in the US, and 232 funds in markets outside the US. It’s a world leader in providing low-cost ETFs.
The idea behind the VAE ETF is that it invests in the Asian share market, except for Japan, Australia and New Zealand.
What countries is it invested in?
China is the biggest exposure with a 42.5% allocation on 31 May 2020. The other four countries that have more than 9% of the allocation are Taiwan, South Korea, Hong Kong and India. Other countries to get an allocation to include Singapore, Thailand, Malaysia, Indonesia and the Philippines.
What are some of the shares VAE is invested in?
The Vanguard FTSE Asia ex Japan Shares Index ETF is invested in just over 1,250 shares. Meaning, it’s invested in a lot of shares. However, its biggest positions are some of the largest businesses in the world. The biggest positions in the VAE ETF are Alibaba, Tencent, Taiwan Semiconductor Manufacturing, Samsung, AIA and China Construction Bank.
In terms of the broad industry diversification, it looks pretty good to me. Around a quarter of the ETF is invested in financials and another quarter is technology. Approximately 15% is consumer services, 9.6% is consumer goods and 8.3% is industrials. The rest is made up of resources, healthcare and essential services.
Why I think the VAE ETF is a good idea
Vanguard FTSE Asia ex Japan Shares Index ETF is diversified with well over 1,000 holdings. It’s also nicely diversified across several industries.
Asia is where a lot of global growth seems to be happening this century. China is gaining power and this economic strength is flowing through to its businesses and citizens. Companies like Tencent and Alibaba could be two of the best global blue chips to own.
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On the numbers side of things, VAE also looks pretty good. It has a dividend yield of 2.8% and a price/earnings ratio of just 13.4x. If you looked at the US market, especially the S&P 500, you’d find a price/earnings ratio of more than 21x. Remember, lower means ‘cheaper’.
I think Vanguard FTSE Asia ex Japan Shares Index ETF could be a good ETF to own. It could help diversify your portfolio without lowering the potential returns. It may well be the best emerging market ETF, as it avoids some of the riskier countries in the world, though China comes with its own set of risks!