Emerging-market stocks typically are high-risk, high-reward propositions. After all, they are called “emerging markets” for a reason — think less-than-ideal political situations, limited market oversight and generally higher risk.
Given those risks, many older investors and those already in retirement often ignore emerging markets from their portfolios … but they might want to rethink that position.
Even holding a sliver of emerging-market stocks can provide much-needed growth to help nest eggs last for the decades they’ll need to. Because we’re simply living longer than we used to, we need our retirement funds to last longer — and that means a larger helping of stocks than what was advised 20 or 30 years ago.
Emerging markets are a great way to get that boost.
And yes, while many companies in emerging markets are risky, there also are a number of large multinationals, much like those domiciled in Europe or the United States. These aren’t fly-by-night operations; they’re large, cash-rich, dividend-yielding issues. (In some cases, these companies are actually larger than their developed-market counterparts!)
Given an increased need for some extra oomph in retirement, as well as the abundance of safer blue chips now domiciled in emerging markets, investors should consider adding some EM exposure.
We’ll show you how you can do that in a number of ways — a stock, an exchange-traded fund (ETF) and a mutual fund.
Emerging Markets for Retirement: PetroChina Company Limited (ADR) (PTR)
When looking at individual emerging-market stocks, retirement investors should focus on the blue chips in the space. And you can’t get much blue-chippier than China’s PetroChina Company Limited (ADR) (NYSE:PTR).
PTR is the world’s largest energy company by market cap and production … sorry, Exxon Mobil Corporation (NYSE:XOM).
PetroChina’s assets span the full gamut of production, refining, marketing and midstream. An unlike many of its integrated rivals, PetroChina actually has managed to increase its reserves through new drilling programs and a series of M&A activity. (That’s been aided by the state-owned status of parent China National Petroleum Corporation and Beijing’s deep pockets.)
While the current energy malaise has crimped PTR’s earnings, it’s not alone. Energy companies across the world have suffered amid low oil and natural gas prices. But PetroChina has the size and scope to continue making money through multiple market cycles; growth elements like LNG and chemicals refining will provide additional boosts.
It’s also pretty cheap, trading at 13 times earnings, and its twice-yearly dividend currently yields a healthy 4.3%.
Emerging Markets for Retirement: iShares MSCI Emerging Markets Minimum Volatility ETF (EEMV)
One of the main concerns for many retirement investors is the volatility in emerging markets. Huge swings can wreak havoc on a portfolio if they cause too much panic, and since investors in retirement are using their nest eggs — not just building them — significant downturns could severely affect just how much they have to live on.
But you can try to take some volatility out of the equation with the iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEARCA:EEMV).
The $2.5 billion EEMV provides exposure to emerging markets, but tries to minimize risk by screening the developing world for stocks that exhibit less volatility than the parent MSCI Emerging Markets Index. This provides investors the ability to capture some upside while limiting downside.
That results in large, dependable holdings such as China Mobile Ltd. (ADR) (NYSE:CHL), Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT) and Taiwan Semiconductor Mfg Co. Ltd. (ADR) (NYSE:TSM). In turn, EEMV even manages to throw off a modest dividend — EEMV yields 2.5% on current prices.
EEMV also has done a pretty good job of performing while bottling risk, returning 9.7% annually since its inception in late 2011 while sporting a beta of 0.8.
Meanwhile, expenses are cheap — for now. EEMV charges 0.25%, or $25 for every $10,000, in annual fees, but that includes a 0.42% fee waiver that is set to expire at the end of this year.
Emerging Markets for Retirement: Matthews Asian Growth & Income Investor Mutual Fund (MACSX)
When it comes to actively managed mutual funds, specialists are typically the best options. Emerging markets — and Asia in particular — are no exception, with Matthews Asia leading the way.
Matthews focuses solely on stocks in Asia, be they emerging or developed, and most of its funds are among the leaders in their respective categories.
The Morningstar Silver-rated Matthews Asian Growth & Income Investor (MUTF:MACSX) mutual fund is a compelling option for retirement investors. This fund’s strategy combs Asia across numerous countries for its best dividend payers. And while MACSX does include some exposure to Japan, Australia and New Zealand, the vast bulk of the portfolio is invested in companies operating in Asian emerging markets. Top holdings include Jardine Matheson Holdings, Ltd. (OTCMKTS:JMHLY), Yum! Brands, Inc. (NYSE:YUM) and Taiwan Semiconductor.
The dividend element — along with some exposure to developed-market stocks — helps MACSX investors to participate in Asia’s growth while providing some downside protection. MACSX currently yields 3% on its twice-yearly payout.
While MACSX has struggled over the past year compared to its peers, MACSX has returned 11.9% over the past 15 years, making it the best fund in this niche over the very long run.
Expenses for MACSX run at 1.08%, and minimum investment is $2,500 (or $500 for an IRA).
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.