A good Emerging Market fund


If you are look­ing for a good fund for this cor­ner of your port­fo­lio, you might want to con­sider Eaton Vance Structured Emerging Mkt (EAEMX). There is also a much cheaper ver­sion (EITEX), but it is open just to folks with a fi­nan­cial ad­vi­sor.

It is a me­chan­i­cal fund. Here is how their strat­egy works (as far as I un­der­stand it):

  1. They divide EM market countries in 4 categories, they assign a weight to each category (I.E. 20% to tier1, 30% to tier2 etc)
  2. For each category they equal weight each country in the category (I.E. in tier1 equal weight Russia, Mexico, etc)
  3. For each country they equal weight each sector
  4. They actively harvest tax losses

The end re­sult is as fol­lows:

  1. Smaller coun­try have more weight than in a nor­mal Em.Mkt. fund. This is good be­cause:

  2. Smaller mar­kets have had higher re­turns in the past

  3. Smaller mar­kets are less cor­re­lated than large mar­kets both among them­selves and against the SP500

  4. Equal weight­ing the sec­tors has the fol­low­ing pos­i­tive ef­fects:

  5. You get more ex­po­sure to sec­tors, like Services, that are go­ing to ben­e­fit from eco­nomic growth

  6. You avoid the commodity ef­fect’: the ten­dency of Em.Markets to fall when com­modi­ties prices fall be­cause such a large slice of their econ­omy is based on it

  7. It is ex­tremely tax ef­fi­cient be­cause:

  8. The me­chan­i­cal strat­egy lends it­self to low turnover

  9. They ac­tively har­vest tax losses

In essence they max­i­mize the pos­i­tive ef­fects of di­ver­si­fi­ca­tion and tax ef­fi­ciency, which are very sta­ble ef­fects. They are math­e­mat­i­cally prov­able 🙂 The real time re­sults con­firm the the­ory as this has been one of the best per­form­ing Em. Markets funds with the low­est stan­dard de­vi­a­tion and best tax ef­fi­ciency. No-one knows what the fu­ture holds, but there is a good chance that this will con­tinue to be the case.

I don’t own it cur­rently be­cause I don’t like the high fees, but the strat­egy makes so much sense that I might end up buy­ing into it.


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A good Emerging Market fund