What is OAEM? (Pros, Cons, and Strategies)

Investing in emerging markets can provide exciting growth opportunities, but navigating these often volatile markets requires the right tools. If you're considering an investment to take advantage of rising economies, you may want to look into the OneAscent Emerging Markets ETF (OAEM). In this blog, we'll explore what OAEM is, and delve into its pros, cons, and potential investment strategies.

What is OAEM?

OAEM stands for OneAscent Emerging Markets ETF, an exchange-traded fund designed to provide exposure to emerging market equities. This ETF aims to invest in companies within emerging markets that demonstrate sustainability and ethical practices, aligning with an ESG (Environmental, Social, Governance) framework.

OAEM is particularly attractive to investors who are looking for growth opportunities in some of the world's most dynamic economies while maintaining a commitment to positive impact and sustainability.

Key Features of OAEM

• Focus on ESG Criteria: Incorporates environmental, social, and governance factors into the investment process to ensure responsible, sustainable investing.
• Diverse Geographic Exposure: Includes companies from various emerging markets such as China, India, Brazil, and South Africa.
• High Growth Potential: Targets companies that are expected to deliver high rates of growth, driven by rapid economic expansion and increasing middle-class wealth in emerging markets.

OAEM's investment strategy focuses on finding high-quality companies with strong growth prospects, sound financials, and ESG compliance, offering diversified exposure to emerging markets.

OAEM Composition

OAEM includes a diverse mix of companies across various sectors such as technology, consumer goods, healthcare, and finance. The ETF comprises both large-cap and mid-cap stocks, ensuring a balanced exposure to different market segments.

Typical holdings may include companies like Alibaba (BABA), Samsung (005930.KS), Tata Consultancy Services (TCS.NS), and Petrobras (PBR). This blend of sectors and market capitalizations helps mitigate risk while capturing growth opportunities.

Pros of OAEM

Exposure to High Growth Markets

One of the biggest advantages of OAEM is its targeted exposure to high-growth markets. Emerging markets often see higher GDP growth rates compared to developed economies. Investing in these markets offers substantial upside potential as these economies continue to evolve and develop.

ESG Focus

In addition to financial returns, OAEM places a significant emphasis on sustainability and ethical investing. This focus not only attracts socially responsible investors but also aligns with the broader trend towards sustainable investing. Companies that adhere to ESG criteria are often better managed and pose lower risks in the long term.

Diversified Risk

By spreading investments across multiple countries and sectors, OAEM mitigates the risks associated with relying on a single market. This diversification helps to buffer against country-specific economic downturns or sectoral slumps, offering a more stable investment experience.

High Growth Sectors

OAEM's inclusion of companies in sectors with high growth potential—like technology and consumer goods—maximizes the appreciation prospects of the investment. These sectors are often the drivers of economic progress in emerging markets.

Cons of OAEM

Market Volatility

Investing in emerging markets comes with greater volatility compared to investing in developed markets. Political risk, economic instability, and currency fluctuations are more common in these regions and can affect investment performance.

Higher Expense Ratio

Emerging market ETFs, including OAEM, often come with higher expense ratios compared to those focused on developed markets. This can eat into returns, especially for long-term investors.

Limited Track Record

Since OAEM operates in emerging markets, it may not have as extensive a track record as ETFs focused on more established markets. This makes it challenging to predict long-term performance based on historical data.

OAEM Investment Strategies

Given the pros and cons of OAEM, how should you approach investing in this ETF? Here are a couple of strategies that might suit different investment goals.

Long-term Growth Strategy

OAEM is suitable for investors looking for long-term growth. Allocating a portion of your portfolio to OAEM can help you capitalize on the high growth potential of emerging markets. It's important to stay invested despite short-term volatility, as the long-term economic trends in these regions are generally positive.

Balanced Portfolio Approach

Adding OAEM to a diversified portfolio can provide a balance between growth and stability. By combining OAEM with ETFs focused on developed markets, bonds, and other asset classes, you can achieve a well-rounded portfolio that mitigates some of the risks associated with emerging markets.

ESG-Aligned Investing

If you are an investor who prioritizes ethical investing, OAEM provides a compelling option. Its ESG-focused investment approach aligns with the increasing demand for responsible investment options, enabling you to grow your wealth while making a positive impact.

Conclusion

OAEM offers a unique investment opportunity for those looking to tap into the growth potential of emerging markets while staying committed to ethical investing. While it comes with certain risks and a higher expense ratio, its advantages, including diversified risk and ESG focus, make it a compelling addition to a well-balanced portfolio. As with any investment, it's crucial to do your own research and consider your long-term financial goals before making a decision.