JEMA: The Optimized Benchmark Emerging Market ETF

LA Capital8 FollowersFollow5ShareSavePlay(22min)CommentsSummaryThis article identifies hidden risks within popular Emerging Market benchmarks like IEMG and VWO, demonstrating how "broad market" exposure often fails to provide true diversification in volatile regions.A quantitative framework is introduced using 2D Z-Score mapping to objectively measure the trade-off between growth and resilience across a universe of 40 different EM ETFs.Analysis of the performance of the benchmark ETFs identifies JEMA as an optimized proxy for capturing EM growth with enhanced resilience.The active management of JEMA provides an edge through a more focused allocation and the ability to tactically rebalance the portfolio.Active Management for Emerging Markets A long-term investment in the collective growth of the developing world certainly sounds like a good idea. And I’m not here to tell you it isn’t. However, Emerging Markets is an area where most of us lack first-hand experience, extensive knowledge, or even a grasp of the latest news and market drivers. One popular solution to this desire to own a piece of something we know little about is to buy a low-cost, broad-market ETF that will give us exposure without us needing to fully understand the environment we are investing in. This approach is logical and not without its merits, but sometimes broad does not equal diversified, and Emerging Markets is an area where all benchmarks are not created equal. In this article we explain why the two main broad-market ETFs, iShares Core MSCI Emerging Markets ETF (IEMG) and the Vanguard Emerging Markets Stock Index Fund ETF (VWO), have vastly differing performance and identify an optimized version in the JPMorgan ActiveBuilders Emerging Markets Equity ETF (JEMA), which we consider a superior holding and recommend as a Buy. Our Buy rating for JEMA is primarily supported by quantitative analysis, which we will explain in detail later, but first let's examine the characteristics of the ETF. It combines market breadth with a fundamental and quantitative methodology. So it invests across the EM region, with exposure to all sectors, market caps, and styles (both growth and value), like a broad-market passive fund would, but it is actively managed with a strategy involving both bottom-up (fundamental financial analysis of each company) and top-down (broad market and sector/geographical trends) research. It uses analysts with local expertise to inform the decision-making, with the overall goal of outperforming the benchmark MSCI Emerging Markets index (which we will show that it does). With the volatility of the Emerging Market, the active management is a decisive edge. The fundThis article was written byLA Capital8 FollowersFollowI am the author and principal analyst for L and A Capital, which provides investment research on UK and US equities from a PhD-educated engineer with over 20 years of research experience. My analysis treats businesses like complex systems in order to identify high-conviction growth and value opportunities suitable for long-term investment. I focus on fiscal health and quality by assessing profitability and cash flow metrics to identify efficient and durable companies for which the current share price is not necessarily a fair reflection of their intrinsic future strength. My analysis is based on an honest and rigorous assessment of the mechanics of the company. If I publish my analysis I typically already own the stock, but I always include a balanced assessment, clearly identifying any risks and empowering readers to make their own informed decisions. I prioritize, “quality at a reasonable price”, so my picks are generally suitable for retirement funds and other long-term investment vehicles, and are often of interest to dividend investors. Through writing for Seeking Alpha I wish to share my distinctive and objective analysis with a wider audience to help minimize emotional trading and potentially enhance retirement outcomes. I aim to offer pragmatic commentary with a lucid, actionable narrative, avoiding financial jargon wherever possible – providing an engaging read that is evidence-based, but also grounded and relatable.Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. 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