Which Emerging Markets fund at Schwab?

[KaluaPork]

Okay, looking for input here to help me decide between two EM funds. My self directed 403b at Schwab allows me to only buy select mutual funds. Sadly, no ETF's allowed (per regulations).

So for my Emerging Markets position at Schwab, I've narrowed my choices between two funds:
SFENX -- Schwab Fundamental Emerging Markets Large Company Index Fund [ER: 0.39, no transaction fees]
VEMAX -- Vanguard Emerging Markets Stock Index Fund Admiral Shares [ER: 0.14, $75 purchase fee]

In my Vanguard taxable, I own the VEMAX fund. My question is which fund to choose at Schwab. Is it worth the $75 commission to buy the VEMAX fund (initial investment would be $25,000). If my math is right, I'll just about break even on the transaction fee with the 25 basis point difference in the expense ratio. Adding to the VEMAX fund/rebalancing would incur more fees, which is a bummer. But as the fund grows, I still might come out ahead over time with the lower ER.

Am I thinking about this correctly? Which would you chose?

Thanks!!

[Max Power]

VWO is the pick.

[KaluaPork]

Sadly, no ETF’s allowed.

[Craigslist]

Invest in NWO - New World Order

[Zzyzx]

emerging markets peaked in Feb and have underperformed since. Various covid crises are hitting hard and may permanently change supply chains, see Vietnam. SFENX looks to be heavy in China so that's a gamble; just consider China keeping its borders shut indefinitely. If the fund is heavy in semis, rare minerals, and tech supply chain then fine, but I'd rather go int'l index over emerging right now, such as SWISX or VTPSX if available.

[Zaphod]

emerging markets peaked in Feb and have underperformed since. Various covid crises are hitting hard and may permanently change supply chains, see Vietnam. SFENX looks to be heavy in China so that's a gamble; just consider China keeping its borders shut indefinitely. If the fund is heavy in semis, rare minerals, and tech supply chain then fine, but I'd rather go int'l index over emerging right now, such as SWISX or VTPSX if available.

EM peaked in the mid 2000s lol.

People should really understand what theyre doing going long EM and the implications of that, what the country and sector balance is and if it even is logical and makes sense. TL;DR is it doesnt, many of these funds were just long china forever, which kinda worked for a while with a huge caveat that made me say they were uninvestable, which is unfolding now.

VWO is 36.8% China, thats not at all diversified and in a country where the politics are turning against profits and returns.

Also the US is very very unique, diversified sectorally and profit streams from all over the world at a signifcant amount. You really cant do much better than that. You're also short dollars when long EM ofc. Speaking of profits/returns you can rank countries by business atmosphere, openness, ROIC, rule of law style, corruption, etc...and US/anglo countries rank the highest and you would expect these to remain so, for the same reason china is having issues and brazil does too (different).

For some reason people hate hearing it and say its home bias but its absolutely true here, and to a slightly lesser extent applies to international as well (they are bad sectors and undiversified).

[artemis]

People should really understand what theyre doing going long EM and the implications of that, what the country and sector balance is and if it even is logical and makes sense. TL;DR is it doesnt, many of these funds were just long china forever, which kinda worked for a while with a huge caveat that made me say they were uninvestable, which is unfolding now.

VWO is 36.8% China, thats not at all diversified and in a country where the politics are turning against profits and returns.

I was wondering if anyone was going to bring up the situation in China in this thread. Frankly, China's recent actions have me concerned enough that I am considering getting out of Vanguard Total International Stock Index Fund (VGTSX) in favor of Vanguard's Developed Markets International Index Fund (VTMGX) because I am no longer comfortable with holding shares in Chinese companies (and not just for financial but for ethical reasons). Getting out of VGTSX will be easy enough in my retirement accounts (although that may mean going with 100% US stock in those accounts), but with a quarter-million in VGTSX in my taxable account, moving the money without being hit with a big tax bill will be much trickier. I may need to resort to a combination of tax-loss harvesting of specific lots and donations to charity if I do decide to get the money out of there.

OP, before you decide to get an emerging markets fund, be honest about how much risk you are truly willing to take. The big gains can be offset by equally horrifying losses, because by definition emerging markets are countries that are NOT stable. I'd suggest keeping any international allocation in a total international index fund and getting your exposure to emerging markets through that.

[KaluaPork]

Really great points. In fact, after further reflection I decided to just own the total int’l index and skip holding a separate EM fund. Thanks for the clarity.

[Zzyzx]

custom indexing for EM and int'l seems ideal to me, and I would love to play around with it

https://www.osam.com/Commentary/cust...ndex-investing

[zlandar]

I was wondering if anyone was going to bring up the situation in China in this thread. Frankly, China's recent actions have me concerned enough that I am considering getting out of Vanguard Total International Stock Index Fund (VGTSX) in favor of Vanguard's Developed Markets International Index Fund (VTMGX) because I am no longer comfortable with holding shares in Chinese companies (and not just for financial but for ethical reasons). Getting out of VGTSX will be easy enough in my retirement accounts (although that may mean going with 100% US stock in those accounts), but with a quarter-million in VGTSX in my taxable account, moving the money without being hit with a big tax bill will be much trickier. I may need to resort to a combination of tax-loss harvesting of specific lots and donations to charity if I do decide to get the money out of there.

OP, before you decide to get an emerging markets fund, be honest about how much risk you are truly willing to take. The big gains can be offset by equally horrifying losses, because by definition emerging markets are countries that are NOT stable. I'd suggest keeping any international allocation in a total international index fund and getting your exposure to emerging markets through that.

The performance since 2012 between the two have been very similar (ETF versions):

https://www.portfoliovisualizer.com/...ocation2_2=100

My international is in VXUS (also IXUS which is very similar when I did TLH last year). To keep it simple I'm going to stick to VXUS rather than add another international fund.

I don't think it's worth trying to get out of VGTSX over China. That's from a non-China fan since I happen to be from the island that China likes to threaten all the time.

[artemis]

The performance since 2012 between the two have been very similar (ETF versions):

https://www.portfoliovisualizer.com/...ocation2_2=100

That doesn't surprise me, since few companies from emerging market nations are going to be large caps, and large caps are where most of the value is in both funds. Ironically, that makes me more confident that moving out of VGTSX (probably slowly) may not be a crazy idea, at least not from a purely financial standpoint.

I don't think it's worth trying to get out of VGTSX over China. That's from a non-China fan since I happen to be from the island that China likes to threaten all the time.

One reason I am leaning this way is that for the past few years China has been making steady progress in its ability to use both military and (more crucially) economic power against its neighbors to get what it wants, even if doing so violates international treaties. And while it may technically be classified as an emerging market, it has the second largest economy in the world. China clearly wants to be at least the regional hegemon, and under Xi it seems to be taking a big turn back into being more authoritarian; that combination spells trouble. I'm beginning to feel like holding stocks (even secondhand) in Chinese companies is like holding shares of IG Farben in 1935.

I'm not usually someone who would consider so-called "socially responsible" investing, and I do want to invest in international companies (and don't even object to investing in most emerging market economies). But I am beginning to feel that I just can't ethically hold stocks (even second-hand) in either Chinese or Russian companies. Switching to an index fund that only holds international stocks from developed nations avoids that problem.

[artemis]

custom indexing for EM and int'l seems ideal to me, and I would love to play around with it

https://www.osam.com/Commentary/cust...ndex-investing

That is a very interesting concept!

[zlandar]

That doesn't surprise me, since few companies from emerging market nations are going to be large caps, and large caps are where most of the value is in both funds. Ironically, that makes me more confident that moving out of VGTSX (probably slowly) may not be a crazy idea, at least not from a purely financial standpoint.



One reason I am leaning this way is that for the past few years China has been making steady progress in its ability to use both military and (more crucially) economic power against its neighbors to get what it wants, even if doing so violates international treaties. And while it may technically be classified as an emerging market, it has the second largest economy in the world. China clearly wants to be at least the regional hegemon, and under Xi it seems to be taking a big turn back into being more authoritarian; that combination spells trouble. I'm beginning to feel like holding stocks (even secondhand) in Chinese companies is like holding shares of IG Farben in 1935.

I'm not usually someone who would consider so-called "socially responsible" investing, and I do want to invest in international companies (and don't even object to investing in most emerging market economies). But I am beginning to feel that I just can't ethically hold stocks (even second-hand) in either Chinese or Russian companies. Switching to an index fund that only holds international stocks from developed nations avoids that problem.

I don't disagree with your assessment China is a bully and Xi thinks he is the Emperor at the head of the Empire. I prefer my investments to be political/socially blind. Even if you don't own stocks in companies based in China you will own stocks in companies that do business in China (i.e. Apple and Tesla). They have all complied with various Chinese demands in order to do business that would never fly in a Western country.

[artemis]

I don't disagree with your assessment China is a bully and Xi thinks he is the Emperor at the head of the Empire. I prefer my investments to be political/socially blind. Even if you don't own stocks in companies based in China you will own stocks in companies that do business in China (i.e. Apple and Tesla). They have all complied with various Chinese demands in order to do business that would never fly in a Western country.

That is very true, but at least non-Chinese companies can pull out if Xi becomes too much of a bully. It may cost them a lot of money, but they can do it. Chinese companies won't have that choice.

I know if I decide to switch it's an emotionally-driven choice. But I am not sure that makes it a bad choice, and I may sleep better at night for doing it.

[Zaphod]

I don't disagree with your assessment China is a bully and Xi thinks he is the Emperor at the head of the Empire. I prefer my investments to be political/socially blind. Even if you don't own stocks in companies based in China you will own stocks in companies that do business in China (i.e. Apple and Tesla). They have all complied with various Chinese demands in order to do business that would never fly in a Western country.

You prefer politically blind stocks? That would be irrational as I said above, political systems, etc...correlate strongly with returns.

That we have a fair amount of china exposure through large cap is def a consideration of whether you want to specifically own more of it.