The MSCI Emerging Markets Index countries are off to a hot start this year.
But for investors looking to get a piece of the MSCI Emerging Markets Index, the better option is not the obvious one.
The MSCI Emerging Markets Index is a market benchmark, not an investment vehicle. To play its performance, investors go with the iShares MSCI Emerging Markets Index ETF (NYSE Arca: EEM), a tracking ETF. Though this year it's not doing a good job of tracking the index...
The MSCI Emerging Markets Index is up 12.9% this year. The ETF is up only 2.3% on the year.
Investors can get a piece of the growth coming out of MSCI Emerging Markets Index countries right now, but the best way isn't with EEM. It's more profitable to go with individual investments that have the best growth potential. This has a better chance to deliver explosive gains than buying an ETF with broad exposure.
And right now, emerging markets should be on every investor's radar...
Why Invest in Emerging Markets?
Emerging markets are a tough sell for the risk averse.
Over the course of the year they can skyrocket, as the accompanying chart shows. But, one year it's up big, while the next it's devastated.
Even so, investors can't enjoy these extraordinary gains without some skin in the emerging markets game.
"At least limited exposure to emerging markets makes sense because they can offer explosive returns," Money Morning Global Resource Specialist Peter Krauth said. "That can apply to everyone, so long as the allocation is kept smaller for the more risk averse."
"But," Krauth added, "I think investors need to be selective."
Here's the best way to invest in the MSCI Emerging Markets Index countries to get a piece of the world's best growth opportunities...
The Best Investments Among MSCI Emerging Markets Index Countries
Emerging markets, while replete with profit opportunities, are not without the obvious concerns.
In the past year, Russia has been struggling with falling oil prices and a weakening ruble. This goes without mentioning the West's sanctions brought on by Russia's military adventurism is Ukraine. India is perpetually in a nuclear standoff with Pakistan. And investors fear China is losing its step.
But that doesn't diminish the profit potential of these MSCI Emerging Markets Index countries...
MSCI Emerging Markets Index Investment No. 1: Market Vectors Russia ETF (NYSE Arca: RSX)
Russia is risky right now given the tensions in Ukraine. After all, "It's Russian strongman Vladimir Putin who threatens global stability," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.
But its moments like these that actually make Russia a great place to put your money for stunning returns.
"The fact that most global traders and the mainstream media are almost universally against Russia right now is a glaring signal that emotions are running high," Fitz-Gerald said. "Given that we know they are almost always wrong, the logical move is to take the other side of the trade."
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Many investors won't touch Russia right now. They will instead wait for things to "get back to normal." But at the same time, they're leaving a lot of potential profits on the table.
RSX invests in countries incorporated in Russia that make 50% of their sales domestically. It has close to $2 billion in assets with a lot of exposure to the Russian energy markets. Its top holdings include Gazprom OAO (OTCMKTS ADR: OGZPY), LukOil (OTCMKTS ADR: LUKOY), and Sberbank Russia (OTCMKTS: AKSJF).
MSCI Emerging Markets Index Investment No. 2: Market Vectors India Small Cap Index ETF (NYSE Arca: SCIF)
India has a lot of potential. And while SCIF, which tracks Indian small- and micro-caps, is subject to intense volatility, it can come with some big rewards. In 2014, it was up 64%. And Krauth said there's "still gas left in this tank."
One of the country's largest imports is oil and gas, so India stands to gain from the current low energy prices. And the pro-business initiatives being pursued by Prime Minister Narendra Modi are going to help this small-cap ETF grow even more.
"India's new leader Modi is taking a fresh approach that's long overdue. He's cutting corporate taxes from 30% to 25% over four years," Krauth said. "Investors and businesses are gaining confidence as infrastructure improvements gain steam."
SCIF holds $266.6 million in assets, with a concentration on tech firms and the financial sector, including microfinance. Its top holdings include SKS Microfinance Ltd. (NSE: SKSMICRO), Suzlon Energy Ltd. (NSE: SUZLON), and Arvin Ltd. (NSE: ARVIND).
MSCI Emerging Markets Index Investment No. 3: iShares China Large-Cap ETF (NYSE Arca: FXI)
China is another country that is seeing its share of detractors. Economic data seems to point toward a slowdown in what has been known as the Chinese "economic miracle."
Though, the critics have China wrong at the moment.
"Most analysts are absolutely convinced that China's a nation on the verge of collapse," Fitz-Gerald said. "Analysts are getting it wrong. Now you can profit before they have time to wake up."
A good way to profit where the critics won't is with FXI.
FXI is the largest, most popular China ETF. It holds close to $6 billion in assets. Its top two holdings are Tencent Holdings Ltd. (OTCMKTS ADR: TCEHY) and China Mobile Ltd. (NYSE ADR: CHL). These represent two exciting companies with a stake in one of China's most promising growth markets: mobile e-commerce.
India's Future Is Bright... India's leader Modi is cutting away at red tape. Investors and businesses are gaining confidence as infrastructure improvements gain steam. And lower oil prices help in the form of savings of around $67 billion annually at current prices. Growth is coming to India, and here's how you can get a piece of it...