The Putnam Emerging Markets ex-China ETF (PEMX) seeks to provide exposure to emerging market equities while specifically excluding Chinese companies. This geographic-focused strategy targets developing economies across Asia, Latin America, Eastern Europe, and Africa, offering investors emerging markets growth potential without China concentration risk.
How It Works
PEMX employs an actively managed approach to select emerging market stocks outside of China, focusing on companies domiciled in or deriving significant revenue from developing economies. The fund's portfolio managers use fundamental analysis to identify undervalued opportunities across sectors and countries. Holdings are weighted based on conviction levels rather than market capitalization, with regular rebalancing to maintain geographic diversification across non-Chinese emerging markets including India, Taiwan, South Korea, Brazil, and other developing nations.
Key Features
- Eliminates China exposure while maintaining broad emerging markets access, reducing single-country concentration risk that typically represents 30-40% of EM indexes
- Active management allows tactical positioning across sectors and countries based on fundamental research rather than passive index constraints
- Recently launched in May 2023, offering 3.92% dividend yield from emerging market companies with strong cash flow generation
Risks
- This ETF can lose value significantly during emerging markets selloffs, potentially declining 40-60% during global risk-off periods or currency crises
- Active management risk means the fund may underperform passive emerging markets indexes if stock selection or country allocation decisions prove incorrect
- Currency fluctuations can amplify losses when emerging market currencies weaken against the U.S. dollar during periods of global uncertainty
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for experienced investors with high risk tolerance and 5+ year investment horizons. Appropriate for those seeking emerging markets exposure while avoiding China's regulatory and geopolitical risks. Requires comfort with significant volatility and active management approach.