First Trust Emerging Markets Equity Select ETF (RNEM) seeks to track a select index of emerging market equities, focusing on companies from developing economies across Asia, Latin America, Eastern Europe, and Africa. This geographic-focused ETF provides exposure to higher-growth potential markets outside developed economies.
How It Works
RNEM employs an actively managed approach using quantitative screening to select emerging market stocks based on quality, value, and momentum factors. The fund focuses on liquid, investable securities from major emerging market countries including China, India, Taiwan, South Korea, and Brazil. Portfolio construction emphasizes diversification across sectors and countries while maintaining exposure to the most attractive emerging market opportunities through systematic security selection.
Key Features
- Active factor-based selection process differentiates from passive broad emerging market ETFs that include lower-quality companies
- Attractive 3.95% dividend yield provides income generation from emerging market dividend-paying companies
- Selective approach typically results in more concentrated portfolio than broad emerging market index funds
Risks
- This ETF can lose significant value during emerging market selloffs, potentially declining 40-60% during global risk-off periods or currency crises
- Currency fluctuations against the U.S. dollar can substantially impact returns as underlying holdings are denominated in local currencies
- Political instability, regulatory changes, and economic volatility in emerging markets can cause sudden, severe price swings beyond typical equity risk
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for aggressive investors with 7+ year time horizons seeking emerging market diversification. High risk tolerance required due to extreme volatility and potential for extended drawdowns. Appropriate for investors comfortable with currency exposure and geopolitical risks inherent in developing markets.