Author: Rahul Diddi

Covestor models: Russia Only, India Only, BRIC, Emerging Markets, Diversified Global, High Yielding Bond ETFs

With the current overall volatility and lack of short term direction in the market, along with increased risk associated with factors such as European debt talks, we see emerging markets facing significantly higher volatility due to lower liquidity.

The lower liquidity in emerging markets is due to end of QE2 and investors pulling out of these regions - in particular, institutional investors pulling out of high beta markets. Given the VIX, we believe emerging market risk appears attractive only for either deep value or more conservative securities. Deep value often means lower liquidity stocks, many of which are not traded as ADRs. More conservative securities include high dividend or emerging market bond ETFs.

In general, we see investment in yield generating ETFs, high dividend paying stocks with lower volatility, and cash is appropriate in this period, where downside market pressure is still significant. However, several stocks on our radar have dropped a lot and we believe the market is soon approaching a buy signal - perhaps when European debt talks begin to show a firmer resolution.

For now, we’ve adopted a more conservative mix in our portfolios. A switch to higher dividend paying stocks and higher yielding ETFs is envisaged. Select equity positions in high EBIDTA and high margin growth stories are being followed closely.