Emerging Gain from Vanguard

10/22/2013 10:00 am EST


Emerging markets have been struggling since 2011. Many have been in bear markets, with declines of as much as 35%, and with only bear market rallies since 2011, observes market timing specialist Sy Harding, editor of Street Smart Report.

Given the risk in individual countries these days, we prefer a diversified emerging-markets mutual fund or ETF, rather than choosing individual countries or individual stocks.

And given the potential over-valued condition of the US market, and its proximity to five-year highs, there may well be more potential in markets that have already experienced bear markets, and are rallying off lows.

Vanguard Emerging Markets (VWO) is a large fund, with 1.2 billion shares outstanding, and a market cap of $50 billion. It is widely diversified. Its twenty largest holdings are only 21.7% of its total holdings.

Those largest holdings include Taiwan Semiconductor, Petroloeo Brasileiro (Brazil), China Mobile, China Construction Bank, CNOOK (China Offshore Drilling), Gazprom OAO (Russia), America Movil (Mexico), Sasol Ltd. (South Africa), Hon Hai Precision (Taiwan), and Infosys (India).

The current dividend yield is 3.36%, and the fund has a low expense ratio of just 0.18%. Meanwhile, it is selling at a P/E ratio of only 12, compared to the S&P 500's P/E Ratio of 19.

The new expectations that the Fed will not begin tapering until sometime next year should provide a further tailwind for emerging markets.

Most recently, technical indicators had been on a sell signal for the Vanguard Emerging Markets, since its peak early this year.

In its tumble from that peak it fell 18% to its summer lows. However, it found solid trendline support again and our technical indicators triggered a new intermediate-term buy signal.

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