Three Stocks Driving Emerging Markets ETF Performance in AVEM

Many investors have moved to add significant foreign equities exposure this year, rewarding them with strong performances and returns. Of course, not every segment of international equities is the same. Emerging markets and developed markets offer different opportunities, with differing interest rate and macroeconomic factors at play. One emerging markets ETF, AVEM, has seen major inflows this year amid strong performance, inviting a closer look at its approach and holdings.

See more: Get More From Rate Cuts in Quality ETF QGRO

The Avantis Emerging Markets Equities ETF (AVEM) charges a 33 basis point (bps) fee for its approach. The fund actively invests in emerging markets stocks across all capitalizations. In aiming to outperform the MSCI Emerging Market IMI Index, the fund leans into small cap firms with strong profits and low valuations. At the same time, its managers look to underweight large caps with low profits and higher price-to-book values.

Together, that has helped the active emerging markets ETF return 31.5% YTD per ETF Database. That has outperformed both its ETF Database Category and Factset Segment averages. Those came in at 24.3% and 24.5%, respectively as of October 7th.  What’s more, the fund has outperformed over the last three and one month periods, too with significant flows. It has added more than $4 billion YTD per ETF Database.

Which stocks, then, has the ETF chosen for its investors this year? Three particular stocks can help explain the fund’s strategy so far. 

To start, it’s of course hard to ignore firms like Tencent Holdings (TCEHY) has returned 62.2% YTD, a strong performance for its investors. The electronic entertainment powerhouse remains a key part of many emerging markets strategies.

Elsewhere, however, are some intriguing names. Reliance Industries (RELIANCE), based out of India, also deserves a mention. The massive company not only include energy and petrochemicals as well as entertainment, mass media, and textiles. Together, its exposure across multiple sectors has helped it return 13.4% YTD.

Finally, it’s worth mentioning NetEase (NTES). The internet technology company has provided a strong performance to investors YTD, returning 73% in that time. NTES operates major games in China for Western developers like Blizzard Entertainment. 

Together, AVEM’s active approach and ability to adapt could make it a worthwhile add on top of an existing equities allocation. With its flexibility, it could get more out of positive trends in emerging markets like currency fluctuations in the U.S. dollar and rate cuts. For those looking at adding ex-U.S. equities, AVEM may be worth watching.

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