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Fidelity Global Emerging Markets Fund ETF (ASX: FEMX)

Key Information

What does FEMX do?

The Fidelity Global Emerging Markets Fund is a managed fund that has been operating since 2013. It listed on the ASX in November 2018, making it easier for investors to enter and exit the fund.

The FEMX fund ETF aims to beat the MSCI Emerging Markets Index NR over the recommended investment timeframe of seven-plus years.

What is FEMX used for?

FEMX could be used by Australian investors to get exposure to a broad basket of public companies, including financials, communications and technology companies, listed in markets that are developing or emerging. These companies could grow their profit over time and pay semi-regular dividends to their shareholders.

What FEMX Invests In

FEMX aims to beat its benchmark by investing in a concentrated portfolio of 30 to 50 companies based in emerging markets such as China, India, South Africa, Brazil and Indonesia. These markets are often considered riskier than developed and Western markets such as the USA, Australia, UK, Canada and Japan.

Fidelity International is one of the world's largest financial institutions. Founded in 1969, Fidelity International manages $430 billion for clients in Asia, the UK, Europe, Africa, Middle and South America. Fidelity International was born out of Fidelity Investments (established in 1946) and became independent in 1980.

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Globally, Fidelity International manages $US430 billion.

Today, Fidelity International is majority-owned by its management and founding family. In Australia, Fidelity has offered active ETFs, otherwise known as exchange-traded managed funds (ETMFs), to Australian investors focused on Global Shares.

The bestETFs global shares sector includes ETFs, managed funds and index funds which cover international equities/share markets. The most popular global shares markets for ETFs include:

  • The USA
  • Europe & the UK
  • Emerging Markets (EM)
  • Asia (including China)

With around 98% of shares listed on markets outside of Australia, we think it's vital for Australian investors to consider looking abroad for exposure to some of the world's best companies, including those from the technology, communications and health care sectors.

Performance Characteristics

Over the ultra-long-term, global shares have proven to be among the best-performing asset classes. However, it is also one of the riskier investments you can make, as measured by standard deviation or volatility.

Hedged or Unhedged?

When you're investing in global ETFs it's worth noting whether or not you're prepared to take on the risk that the currency moves in your favour or against you. Typically you'll have two options:

  1. Hedged ETFs will attempt to 'lock-in' the exchange rate at the time you make your investment
  2. Unhedged ETFs do not provide protection against movements in the currency

Which one is better? That's up to you.

Just keep an eye on the costs of the hedged versus unhedged versions of the strategy/ETF and consider your own risk profile.

Taxes

Finally, take note of where your international ETF is 'domiciled' by reading its PDS or the ETF Issuer's website because this -- sometimes hidden -- feature could meaningfully affect your tax.

  • Australian domiciled ETFs - these are registered and regulated in Australia and are 'Australian residents' for tax purposes. These are just like an ordinary share or ETF you would buy on the ASX and the tax paperwork is filled out by the fund manager at the fund level.
  • Foreign domiciled, 'cross-listed' or CDI ETFs - these ETFs are registered offshore and provide a beneficial interest to investors via a 'CDI' listing on the ASX. Sometimes these ETFs may require additional paperwork for taxes, such as filling in a US W8-BEN form to reduce withholding tax or expose ETF investors to foreign regulation or U.S. Estate Taxes.

Consult with your tax and/or financial adviser before investing.

A managed fund is a pool of investors' money, which is invested by a professional. For example, 1,000 investors invest $10,000 each into a special bank account and get 10,000 "units" in return. That is, $1 might buy you 1 unit.

Once the money is in the fund, the professional fund manager (which may be an individual, a group of analysts or an entire company, will invest that money. If the investments do well the unit price will increase.

If you had invested $10,000 and the 'unit price' (which is normally published on the fund manager's website) went up 10% (to $1.10 each), your original investment is now worth $11,000 (10% more). You could sell your units (also called a withdrawal or 'redemption') and take your cash.

What Is An ASX Managed Fund ETF?

The major difference between a normal unlisted 'managed fund' and an ASX-listed managed fund is how you get your money in-and-out of the fund.

An Exchange Traded Managed Fund (ETMF) or Active ETF is simply a managed fund which is listed on the stock exchange. The ASX categorises these differently to let you know that they might use a more active strategy than a normal index fund.

Basically, ASX managed funds use an ETF 'wrapper'.

Having a managed fund available on the ASX makes it easy to invest because all you need to do is click "buy" or "sell" in your share brokerage account. 

Are Managed Funds The Same As Index Funds, ETFs, Rules-Based ETFs and Hedge Funds?

No.

Index funds, hedge funds, ETFs and Rules-Based ETFs are types of managed funds. Click the links below to learn more.

Education:

bestETFs assesses the performance of global shares ETFs against their peer group, which commonly use indices prepared by companies such as Standard & Poor's, MSCI, FTSE and others.

When you're comparing global ETFs it's important to understand which index your fund is tracking because slight changes in the index's definition of sectors or geographies can impact the risk-return profile of the ETF.

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Some of the common global shares benchmarks include:

All World

  • MSCI All World ex-Australia (with dividends reinvested) (AUD)
  • MSCI AWCI World Index

USA

  • CRSP US Total Market ETF
  • S&P 500
  • NASDAQ 100
  • Dow Jones Industrial Average (DJI)

Asia 

  • FTSE Asia Pacific ex Japan, Australia and New Zealand
  • FTSE China 50 Index
  • MSCI Japan Index

Europe & UK

  • FTSE 100
  • S&P Europe 350

Note: you should always consult a licensed and trusted financial adviser before doing anything. This information is factual information and should not be considered financial advice.

According to academic study, when you invest globally, you may be lowering some of your risks. For example, you won't have all of your eggs in your 'Australia basket'.

However, there are extra risks added when you invest overseas. Some of these risks include:

  • Sovereign/regulatory risks - Governments and regulators throughout the world can change their policies on investing, taxes and even the rights of people and investors. Australia has a very stable and robust financial, legal, political and societal system -- many countries don't.
  • FX/currency risks - A big reason many investors put their money overseas is to get exposure to another country's currency. For example, if you invest 1 AUD into US Dollars at a currency exchange rate of 1.00, you will get 1 USD in return. If the USD gets stronger (meaning the Aussie dollar exchange rate falls), your 1 USD is now worth more! However, it can go the opposite direction. For example, if the AUD-USD goes to 1.10, your 1 USD (bought at a lower exchange rate) is now worth less in AUD terms than before. This risk is the reason why some ETFs are currency 'hedged' -- to avoid the impact of currency fluctuations.
  • Counterparty risk  & holding structure - Some ETF issuers use complicated holding structures to get you exposure to the underlying investment overseas. In Australia, ASX-listed shares and ETFs use the same system to 'settle' transactions and 'hold' your ETFs in your name, it's called the CHESS system. However, if the ETF invests in overseas shares it's likely those shares will be held using another system or holding structure governed by other rules. Rest assured there are some safeguards in place. But you should always do your research, read the ETF's Product Disclosure Statement (PDS) or consult a licensed financial adviser.
  • Timezone - Often, global sharemarkets will be open when you're asleep. Conversely, Australian sharemarkets (where you buy into the ETFs) operate when the rest of the world is asleep. That makes tracking the latest ETF prices a little more difficult for you and for ETF issuers. This could lead to changes in the 'unit price' or the "net asset value" (NTA) of the ETF overnight.

Note: you should always consult a licensed and trusted financial adviser before doing anything. This information is factual information and should not be considered financial advice.

This ETF could be used as part of a 'tactical' or 'satellite' allocation in a diversified long-term portfolio because of its unique strategy, costs, risk-reward profile and the expectation of long-term returns.

What is The Core-Satellite Approach?

A core-satellite approach puts investments into two 'buckets' depending on the expected risk and returns.

Bucket 1: Core Investments

The 'core' is the larger part of an investment portfolio and could be reserved for more conversative investments. For example, this might include diversified, low-cost and easy to understand funds, bonds, shares or ETFs.

If you're new to investing, the core is a good place to start.

Core ETFs might include:

Bucket 2: Satellite/Tactical Investments

The 'satellite' or tactical bucket is the smaller part of a portfolio (e.g. 0% to 30% of your entire portfolio). In this section, investors might decide to take more risk, invest in unique or unproven strategies, buy fast-growth individual shares, etc.

Tactical strategies could be higher risk, higher cost and more complicated strategies that are used in the hope of outperforming the averages (e.g. ASX 200, S&P 500, etc.).

Tactical ETFs might include:

The bestETFs website currently provides free access to a database of Australian ETFs, index funds and (soon) selected managed funds. The website contains factional information only and should NOT be considered a source of financial advice (meaning you should NOT act on the information presented here).

If you are wondering whether this ETF is a good investment, you should speak to a licensed and qualified financial adviser. Alternatively (or in addition) you should always read the ETF's Product Disclosure Statement (PDS), which should be available on the ETF provider's website. The PDS explains some of the risks, the fees and other important information.

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FAQs

What Is An ETF?

Investing in an Exchange Traded Fund or ETF is typically a way to buy a tiny slice of many different shares, bonds or currencies with one investment. Technically, ETFs are 'funds' or legal 'trusts' which allow investors to pool their money together in one place and invest in the same strategy.

Learn more here.

What Is An Index Fund?

An index fund is a type of 'managed fund' which pools money in one place and follows an index. For example, an ASX 200 index fund buys all 200 shares included in the S&P/ASX 200 index maintained by Standard & Poor's.

Learn more here.

What's The Difference Between An 'Active' and 'Passive' Investment?

Traditionally, 'active' investors pick individual stocks they think will outperform the market (e.g. ASX 200 index). For example, an 'active' fund manager would pool investors' money together and invest that money in their best stock ideas.

'Passive' investors are investors who buy into standard index funds, like one that follows the ASX 200 or USA's S&P 500. These are also run by fund managers but they don't use their 'skills' or 'analysis' to pick individual stocks. Instead, they invest in the entire market and investors benefit from the growth of all companies, on average.

What Are Rules-Based Investments?

In recent times we've witnessed the emergence of 'rules-based' or 'smart beta' investment strategies, which are kind of in-between active and passive.

Typically, these strategies use automated rules to invest with strategies covering stocks/shares, bonds/fixed income, currencies, commodities (e.g. gold) and derivatives contracts (e.g. options). For example, a rule might be 'buy this share if XYZ happens' or 'sell that share if ABC is true', etc..

Learn more here.

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