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Article

Evaluating the Performance and Diversification Benefits of Emerging-Market Exchange-Traded Funds

Srinidhi Kanuri, Davinder Malhotra and James Malm
The Journal of Wealth Management Spring 2018, 20 (4) 85-90; DOI: https://doi.org/10.3905/jwm.2018.20.4.085
Srinidhi Kanuri
is an assistant professor of finance at the University of Southern Mississippi College of Business in Hattiesburg, MS
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Davinder Malhotra
is a professor of finance at Thomas Jefferson University in Philadelphia, PA
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James Malm
is an assistant professor of finance at Charleston College in Charleston, SC
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Abstract

This study evaluates the performance and diversification benefits for U.S. investors of emerging-market exchange-traded funds (ETFs) since their inception in January 2003 through June 2015 by comparing their absolute and risk-adjusted performance with the iShares Core S&P 500 ETF (IVV). The authors find that the emerging-market ETF portfolio has very low correlations with IVV during the period of the study. Emerging-market ETF portfolios delivered better absolute performance (returns and wealth) but also had much higher risk (standard deviation of returns). However, the risk-adjusted performance (Sharpe and Omega ratios) of IVV was better than that of the emerging-market ETF portfolio. They also look at the effect of adding some emerging-market ETFs to IVV during the period of study. The authors find that adding some emerging-market ETFs to IVV leads to higher absolute returns, better risk-adjusted performance (Sharpe and Omega ratios), higher cumulative returns, and increased wealth for U.S. investors. Results are statistically significant at 1% in all cases. Therefore, U.S. investors should add some emerging-market ETFs to their domestic allocation based on their risk tolerance for better performance (absolute and risk-adjusted).

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The Journal of Wealth Management: 20 (4)
The Journal of Wealth Management
Vol. 20, Issue 4
Spring 2018
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Evaluating the Performance and Diversification Benefits of Emerging-Market Exchange-Traded Funds
Srinidhi Kanuri, Davinder Malhotra, James Malm
The Journal of Wealth Management Jan 2018, 20 (4) 85-90; DOI: 10.3905/jwm.2018.20.4.085

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Evaluating the Performance and Diversification Benefits of Emerging-Market Exchange-Traded Funds
Srinidhi Kanuri, Davinder Malhotra, James Malm
The Journal of Wealth Management Jan 2018, 20 (4) 85-90; DOI: 10.3905/jwm.2018.20.4.085
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