RT Journal Article
SR Electronic
T1 Evaluating the Performance and Diversification Benefits of Emerging-Market Exchange-Traded Funds
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 85
OP 90
DO 10.3905/jwm.2018.20.4.085
VO 20
IS 4
A1 Srinidhi Kanuri
A1 Davinder Malhotra
A1 James Malm
YR 2018
UL https://pm-research.com/content/20/4/85.abstract
AB This study evaluates the performance and diversification benefits for U.S. investors of emerging-market exchange-traded funds (ETFs) since their inception in January 2003 through June 2015 by comparing their absolute and risk-adjusted performance with the iShares Core S&P 500 ETF (IVV). The authors find that the emerging-market ETF portfolio has very low correlations with IVV during the period of the study. Emerging-market ETF portfolios delivered better absolute performance (returns and wealth) but also had much higher risk (standard deviation of returns). However, the risk-adjusted performance (Sharpe and Omega ratios) of IVV was better than that of the emerging-market ETF portfolio. They also look at the effect of adding some emerging-market ETFs to IVV during the period of study. The authors find that adding some emerging-market ETFs to IVV leads to higher absolute returns, better risk-adjusted performance (Sharpe and Omega ratios), higher cumulative returns, and increased wealth for U.S. investors. Results are statistically significant at 1% in all cases. Therefore, U.S. investors should add some emerging-market ETFs to their domestic allocation based on their risk tolerance for better performance (absolute and risk-adjusted).TOPICS: Exchange-traded funds and applications, emerging, portfolio construction, performance measurement