SCHE ETF: Nothing you see here. Keep moving

developing markets

Ildo Frazao

Written by Alex Rosen.

Summary

Schwab Emerging Markets Equity Fund (New York: Shi) follows the Financial Times Stock Exchange 100 (FTSE) index in tracking large and mid-cap companies in predominantly emerging markets. Nothing about the fund will make investors stand up and beat it Joy. If you’re looking to immerse yourself in emerging markets, even if just to say your portfolio is diversified, you might consider other emerging market funds that focus on specific sectors. Overall, we rate it a sell, as it’s too generic for our taste.

strategy

SCHE’s strategy is to track the FTSE as closely as possible before fees and expenses. This is it. The fund owns more than 1,800 individual shares. The main sectors are finance, technology and e-commerce. The main countries are Hong Kong, India and Taiwan, the ten largest holdings account for 20% of the total fund.

ETF scores are owned

  • Attack / Defense: Attack
  • Sector: Non-US Equity
  • Subsector: Emerging Markets
  • Correlation (against the S&P 500): High
  • Expected volatility (vs. S&P 500): High

Holding analysis

SCHE owns more than 1,800 mid- and high-cap emerging market stocks. Holdings are distributed evenly, and no one owns more than 5% of the total assets. The fund is directed towards China and India, as these two countries account for nearly 60% of the fund. Sectors are also evenly distributed, with finance, technology and electronic tails coming in the top three.

strength point

SCHE’s strength lies in its simplicity. Nothing stands out and says “look at me” or “try this” or “follow this strategy because it’s unique”. No, SCHE is a very simple ETF that won’t blow anyone away, but it also won’t send investors running for the hills. The potential for the ETF to be a house of cards is negligible. Anyone can follow the strategy and replicate it themselves with very little effort. What you see is what you get.

vulnerabilities

The very thing that is SCHE’s strength can also be its weakness. Rufus Miles once said “Where you stand depends on where you sit.” If you’re an emerging market optimist, particularly South and East Asia, without a particular sector preference, this could be interesting, but if you want something with a little extra excitement, SCHE has very little to offer.

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Data by YCharts

opportunities

Emerging markets, the next big thing. The future is BRICS (Brazil, Russia, India, China and South Africa). The United States and Europe are in recession. We shall look forward to expanding our horizons and expanding into new markets. Since when do analysts say this. Still true. Is SCHE strategically positioned to capture this market when it finally takes off? Can. Investing in emerging markets isn’t the worst idea, but make sure the markets are really emerging, not just labeling themselves to sneak into portfolios.

threats

SCHE is heavily loaded in Hong Kong and Taiwan. Hong Kong is not an emerging market, nor is it, in fact, a country. Recent events in China have clearly shown that President Xi Jinping will no longer tolerate Hong Kong’s liberal stance on freedom of expression and activism. In addition, every day a new story appears about how China plans to take back Taiwan. Is that correct? Nobody really knows, but it’s definitely something to watch out for in the future.

Proprietary technical classifications

  • Rating Short-Term (Next 3 Months): Sell
  • Long-term rating (next 12 months): Sell

conclusions

ETF quality opinion

SCHE is a good enough ETF with a wide range of assets across several emerging markets. However, the heavy dependence on Taiwan and Hong Kong makes it a little unsettling, as both are subject to the whims of China.

ETF investment opinion

We classify SCHE on sale. The fund is too broad for our liking, and any upward move is likely to be mitigated by its diversity. 1,800 shares in one fund can become unwieldy. If you’re serious about getting involved in emerging markets, maybe pick a sector first. If you just want to be able to say you’re investing in emerging markets, maybe this has some value for bragging rights alone. Otherwise, find something less prevalent.