Some current strategies for investing in emerging markets are flawed because they rely on indices that base allocations on company market cap, according to the Wall Street Journal.

The paper says the reason for this is that mutual funds and exchange-traded funds rely on independent indexes, of which MSCI is the best known, when constructing their portfolios. The indexes are based mathematically on the market capitalization of the companies.

For example, a quarter of the MSCI Emerging Market Index is accounted for by energy and raw-materials companies.

Funds noted as good options for addressing the volatility include the PowerShares FTSE RAFI Emerging Markets Portfolio [profile] (sub-advised by Rob Arnott’s Research Affiliates) and the low-fee small cap products SPDR S&P Emerging Markets Small Cap ETF [profile] and WisdomTree Emerging Markets SmallCap Dividend Fund [profile]. 

Edited by: Tommy Fernandez


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