Investing in emerging markets can be an effective way to diversify your investment portfolio and potentially achieve high returns, albeit with higher risk. Emerging markets are economies that are in the process of rapid growth and industrialization, and they often offer potential for high returns, although this comes with elevated risk compared to investing in more developed markets. Examples of emerging markets include countries like China, India, Brazil, Russia, and others. What are the best emerging market ETFs? Don’t forget to check the websites of our partners to get the best financial data: FMP and FMPCloud.
Exchange-Traded Funds (ETFs) can be an efficient way to gain exposure to these emerging markets. These funds pool together securities from multiple companies, often replicating a specific index, and trade on an exchange just like individual stocks. This allows investors to diversify their holdings and mitigate some of the risks associated with investing in individual companies.
Choosing the best emerging market ETF for your needs will depend on a number of factors, including your risk tolerance, investment goals, and the specific markets you’re interested in. Criteria to consider when evaluating ETFs include performance history, expense ratio, fund size, diversification, and the investment approach of the fund. What are the best emerging market ETFs?
Vanguard FTSE Emerging Markets ETF (VWO)
The Vanguard FTSE Emerging Markets ETF (VWO) is a popular investment product that seeks to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. This Index is a market-capitalization-weighted index designed to measure the market performance of large-, mid-, and small-capitalization companies in emerging markets.
Some key features of VWO included:
- Diversification: The ETF provides exposure to a wide range of companies in emerging market countries, thus offering broad diversification across these markets.
- Lower Costs: VWO, like many other Vanguard funds, is known for its low expense ratios, which makes it an affordable option for investors looking for exposure to emerging markets.
- Exposure to Growth: Emerging markets are often characterized by higher growth rates than developed markets, making this ETF a potential choice for investors looking for growth opportunities. However, this also comes with a higher level of risk.
- Passive Management: The ETF is passively managed, meaning it aims to replicate the performance of its underlying index rather than trying to outperform it.
As always, while this ETF can be a part of a diversified portfolio, potential investors should consider their risk tolerance, investment horizon, and investment objectives before investing. You should also check the most recent data and consult with a financial advisor to understand the current status of the fund and whether it aligns with your financial goals. The state of the markets, global economy, and specific events can significantly impact the performance of the fund. One of the best emerging market ETFs!
iShares Core MSCI Emerging Markets ETF (IEMG)
The iShares Core MSCI Emerging Markets ETF (IEMG) offers several benefits that may make it an attractive investment for certain investors. Here’s why:
- Diversification: IEMG provides broad exposure to equities across a diverse range of emerging markets. This diversification can help to spread risk, as the performance of the fund isn’t tied to a single economy or sector.
- Access to Growth Opportunities: Emerging markets often offer higher growth potential than developed markets, which can provide opportunities for significant returns. While these markets can be more volatile, they may offer higher potential returns over the long term.
- Cost-Efficiency: IEMG is known for its low expense ratio, making it a cost-effective way to gain exposure to emerging markets. Lower costs can significantly contribute to higher net returns over time.
- Flexibility and Liquidity: As an ETF, IEMG shares can be bought and sold throughout the day at market prices, offering flexibility and liquidity to investors.
As for how IEMG is different from Vanguard’s FTSE Emerging Markets ETF (VWO), it largely comes down to the specifics of the indices they track and their regional exposure. For example:
- Index Differences: IEMG tracks the MSCI Emerging Markets Investable Market Index, while VWO tracks the FTSE Emerging Markets All Cap China A Inclusion Index. The constituents and weighting methodologies of these indices differ, which could lead to slight variations in performance.
- Regional Exposure: The specific emerging markets that these funds are exposed to can also vary. VWO had greater exposure to China due to the inclusion of China A-shares (companies listed on mainland China’s exchanges). IEMG, however, had a more diversified exposure. These differences could impact the funds’ returns depending on which markets perform well.
Schwab Emerging Markets Equity ETF (SCHE)
The Schwab Emerging Markets Equity ETF (SCHE) is an exchange-traded fund that aims to track the performance of the FTSE Emerging Index. The index is a market-capitalization weighted index that represents the performance of large and mid-sized companies in emerging markets.
Here is a quick overview of SCHE presented in a table:
| Key Features | Description |
|---|---|
| Fund Type | Exchange-Traded Fund (ETF) |
| Objective | To track the performance of the FTSE Emerging Index |
| Management Style | Passively Managed |
| Diversification | Offers exposure to large and mid-sized companies in various emerging markets |
| Expense Ratio | Known for low expenses, check the latest prospectus for current rates |
| Risk Level | Higher risk associated with emerging markets, including economic instability and political volatility |
| Market Trading | Shares can be bought and sold throughout the trading day |
| Portfolio Holdings | Diverse holdings across sectors and countries |
Please note that while investing in SCHE and similar ETFs can offer access to high-growth potential markets and diversification benefits, they also come with risks, such as market volatility, political risks, and currency risks, among others. It’s crucial to align any investment with your personal financial goals, risk tolerance, and investment timeline. Always consider consulting with a financial advisor for personalized advice. One of the best emerging market ETFs!
iShares MSCI Emerging Markets ETF (EEM)
The iShares MSCI Emerging Markets ETF (EEM) is a type of exchange-traded fund (ETF) managed by BlackRock’s iShares division, one of the largest ETF providers globally. EEM is designed to track the investment results of an index composed of large and mid-capitalization emerging market equities.
Here are some features of EEM:
- Diversified Exposure: By tracking the MSCI Emerging Markets Index, EEM gives investors broad access to large and mid-sized companies in emerging markets. This includes countries such as China, South Korea, Taiwan, and India, among others.
- Growth Potential: Emerging markets often present higher growth opportunities compared to developed markets. Therefore, EEM could be a valuable addition for investors seeking growth in their portfolios.
- Liquidity: EEM is one of the most heavily traded ETFs in the market. High liquidity allows investors to buy or sell shares of the ETF relatively easily without significantly impacting the price.
- Passive Management: Like most ETFs, EEM employs a passive investment strategy, aiming to replicate the performance of its benchmark index rather than outperform it.
Keep in mind that investing in emerging markets comes with its set of risks, including geopolitical uncertainties, economic volatility, and currency risks. Therefore, it’s essential for investors to evaluate their risk tolerance and investment objectives before choosing to invest.
WisdomTree Emerging Markets High Dividend Fund (DEM)
WisdomTree is a New York-based investment company known for pioneering the concept of fundamentally weighted ETFs, which weight securities based on factors such as dividends or earnings, rather than market capitalization. WisdomTree offered ETFs across equities, fixed income, currencies, and alternatives.
One of WisdomTree’s funds is the WisdomTree Emerging Markets High Dividend Fund (DEM). Here’s an overview:
WisdomTree Emerging Markets High Dividend Fund (DEM)
The WisdomTree Emerging Markets High Dividend Fund (DEM) is an exchange-traded fund that seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Emerging Markets High Dividend Index.
Key aspects of DEM:
- Dividend Focus: DEM invests in high dividend-yielding companies in emerging markets, making it a potential choice for income-focused investors.
- Diversified Exposure: By investing in various emerging markets, DEM provides broad exposure to companies across diverse economies and sectors.
- Fundamental Weighting: In line with WisdomTree’s approach, DEM’s underlying index uses a fundamental weighting methodology based on annual cash dividends paid.
- Potential for Higher Returns: High dividend-yielding companies can provide attractive total returns — both capital appreciation and income.
It’s important to note that investing in emerging markets comes with potential risks, including economic instability, political volatility, and changes in currency values. Hence, investors need to consider their risk tolerance and investment objectives before investing in this ETF. One of the best emerging market ETFs!
