BMO MSCI Emerging Markets Index ETF (ZEM) Review
We have embarked on a journey to explore ‘all’ of the exchange-traded funds (ETFs) created by the BMO Global Asset Management group. They have around 149 ETFs at the moment and the list keeps on growing. So, at least we will try to cover the most popular and best-performing ETFs in their portfolio. In this article, we talk about the BMO MSCI Emerging Markets Index ETF, ticker symbol; ZEM.TO in the Toronto Stock Exchange (TSX).
BMO Global Asset Management (BMO GAM) is a family member of the Bank of Montreal, Canada’s first bank. The company holds a massive portfolio of exchange-traded funds (ETFs) that fit different investment goals of their customers. From low-risk funds to high-risks and from moderate incomes to high incomes, they have funds that fit all your investment needs. A smart investor will invest in a collection of these ETFs to manage risk and increase yield.
The BMO MSCI Emerging Markets Index ETF, as the name suggests, focuses on emerging markets from around the world.
An emerging market is an economy that showcases the potential for high growth and development. These are not entirely underdeveloped markets, but are not quite fully developed either. Hence, these markets provide some of the largest growth opportunities for investors.
However, emerging markets are also prone to a lot of volatility and risk. This fund attempts to mitigate these risks by selecting a portfolio of large to mid cap companies.
The BMO MSCI Emerging Markets Index ETF (ZEM) attempts to replicate the performance of the MSCI Emerging Markets Index, which invests across 26 emerging markets.
| Quick Facts | ZEM.TO |
|---|---|
| Fund inception date | October 20, 2009 |
| Net Assets (Oct 20, 2021) | $2 billion |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 2.13% |
| Distribution frequency | Annually |
| Management expense ratio | 0.27% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
BMO ranks ZEM ETF as a medium-risk investment due to the inherent risks that emerging markets carry. Regardless, the fund still carries some of the biggest global brands which were incorporated in these emerging markets.
BMO MSCI Emerging Markets Index ETF (ZEM) Holdings
ZEM fund holds over 830 investments spread across other ETFs, companies, and some cash. Below are the top 20 holdings of the fund as of October 20, 2021.
| Holding Name | Weightage |
|---|---|
| ISHARES MSCI EMERGING MARKETS ETF | 7.08% |
| TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD | 6.13% |
| TENCENT HOLDINGS LTD | 4.27% |
| ALIBABA GROUP HOLDING LTD | 3.89% |
| SAMSUNG ELECTRONICS CO LTD | 3.25% |
| MEITUAN | 1.57% |
| RELIANCE INDUSTRIES LTD | 1.23% |
| INFOSYS LTD | 0.98% |
| NASPERS LTD | 0.95% |
| JD.COM INC | 0.88% |
| CHINA CONSTRUCTION BANK CORP | 0.81% |
| GAZPROM PJSC | 0.72% |
| HOUSING DEVELOPMENT FINANCE CORP LTD | 0.71% |
| SBERBANK OF RUSSIA PJSC | 0.67% |
| NIO INC | 0.63% |
| WUXI BIOLOGICS CAYMAN INC | 0.62% |
| VALE SA | 0.61% |
| AL RAJHI BANK | 0.60% |
| ICICI BANK LTD | 0.60% |
| TATA CONSULTANCY SERVICES LTD | 0.58% |
In the top 20 holdings alone, we see some popular corporate giants. Samsung is the largest mobile manufacturer in the world since 2018. Taiwan Semiconductor Manufacturing Company is the largest semiconductor manufacturer in the world, and semiconductors are an integral part of modern electronics from mobile phones to computers to laptops to TVs to electric vehicles.
Jack Ma’s Alibaba is the third-largest e-commerce platform in the world after Amazon.com and JD.com, the latter also made the ZEM holdings list.
Reliance, ICICI Bank, and Tata are massive names in the Indian corporate scene.
Hence, these 800+ holdings provide a significant degree of diversification across sectors and geographies within the emerging markets.
Around 21% of the holdings are located within the Information Technology sector, followed by 19.7% in Financials, 14.8% in Consumer Discretionary, 10.2% in Communications, 8.5% in Materials, 6.3% in Energy and so on.
About 32% of the assets of the fund are invested in China, followed by 15% in Taiwan, 12.7% in South Korea, 12.1% in India, 4.2% in Russia, 3.99% in Brazil, 3.6% in Saudi Arabia, and so on.
BMO MSCI Emerging Markets Index ETF (ZEM) Performance
ZEM attempts to track the MSCI Emerging Markets Index. Hence, BMO provides a comparison of its ETF against its underlying index.
ZEM ETF has been in operation for over a decade now which gives us a good enough time period to evaluate its performance. Since 2009, ZEM has given returns of 91.02% while the MSCI Emerging Markets Index has returned around 103% until 2021. Although ZEM is lagging behind, this is still a great performance.
An investment of $10,000 in ZEM ETF in 2009 would have turned to $19,102 by 2021.
The blue and the yellow lines should be overlapping each other, ideally. However, we would not panic just yet.
Is ZEM ETF for You?
If you wish to tap into the high growth potential of emerging markets with some degree of risk, this might be a good ETF for you. Emerging markets provide some of the biggest growth opportunities for your money and one of the safest ways to tap into these hidden gems is through a sizable ETF that holds a basket of quality companies.
Check out the latest information about the fund on BMO.
Disclosure: Any information given in this article is not to be construed as investment advice. You must do your own research before investing any money in the stock market. All investments carry inherent risks even with the possibility of losing all your money.
