Tap growth opportunities in emerging markets.
Emerging-market exchange-traded funds come in many shapes and sizes. But not every fund that offers overseas investments is worth your time or money. Investors may face two key challenges when attempting to enter emerging markets: keeping fees down and finding investments that are large and liquid enough to buy and sell without complications. That said, many low-cost index funds are competitive on price but still command billions in assets and a high average trading volume. Here are seven of the best emerging-market ETFs to buy now.
Vanguard FTSE Emerging Markets ETF (ticker: VWO)
The largest of the emerging-market ETFs by assets, VWO boasts more than $115 billion in total net assets and holds more than 5,200 stocks from across the globe. Admittedly, it’s a bit top-heavy. The fund’s 10 largest holdings account for about 24% of the portfolio’s weight. More than 30% of the fund is dedicated to technology. “A well-diversified ETF like (the) Vanguard FTSE Emerging Markets ETF gave an annual return of 37% in the last year and CAGR (compound annual growth rate) of 9% over the last five years with a good risk-return trade-off due to exposure to economies like India, China, Taiwan and Brazil,” says Nikhil Kamath, co-founder and chief investment officer of True Beacon, a client-aligned asset management initiative. If you’re looking for the largest and most liquid investment among emerging-market ETFs, this is the right fund for you. And at just 0.1% in annual expenses — or $10 annually on every $10,000 invested — it’s also among the cheapest options.
iShares Core MSCI Emerging Markets ETF (IEMG)
Close behind in the list of biggest and best emerging-market ETFs, with more than $81 billion in assets, is IEMG. The fund owns a slightly smaller portfolio of stocks at roughly 2,600 positions. It’s a bit more diversified geographically with about 13% exposure to South Korea and a smaller allocation in China than VWO at about 34%. It also has a somewhat smaller allocation in financials for a better division among sectors. “For those investors who put an emphasis on low-cost investing, consider IEMG,” says Mark Andraos, associate portfolio manager at Regency Wealth Management in New York. “IEMG captures both mid- and small-cap emerging-markets companies as well, allowing you to invest in nearly 99% of the companies in the total EM equity universe.” The fund also comes with a small expense ratio of 0.11%.
Schwab Emerging Markets Equity ETF (SCHE)
Although SCHE is smaller than the first big funds, having fewer total net assets and fewer holdings compared with VWO and IEMG, the fund is no slouch with more than $9 billion in total net assets. The fund has a similar makeup, with a focus on China and financials, but the list gets even narrower with about 1,600 total components. Generally, that means this fund is cutting out the smaller names. This fact is evidenced by a weighted average market capitalization of about $168 billion for the Schwab emerging-market fund, while the Vanguard and iShares offerings both have a weighted average market cap of about $152 million. The focus on larger stocks may be appealing, though, if you’re looking for better-capitalized players in the admittedly riskier regions of emerging markets.
iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB)
Overseas investing doesn’t have to be limited to stocks, however. This emerging-market ETF comprises bond investments across fast-growing regions, offering exposure to U.S. dollar-denominated debt issued by emerging-market governments, including Saudi Arabia, Russia, Brazil and others, which helps reduce currency risk for U.S. investors. As one of the first emerging-market debt ETFs, EMB is known for holding stable assets and its liquidity. No single nation represents more than about 3.99% of the portfolio’s weight, providing a diversified play on sovereign debt across emerging markets. And unlike corporations, these governments have the power to tax and use central banks to avoid insolvency and ensure that these debts get paid. One more thing to interest investors: The fund yields 3.85%.
SPDR Portfolio Emerging Markets ETF (SPEM)
SPEM is among the top emerging-market ETFs, offering broad exposure to EM equities. The fund tracks the S&P Emerging BMI Index, which captures companies with a market cap of at least $100 million. It has more than $6 billion in assets under management and offers a low expense ratio of 0.11%. The fund holds about 2,600 stocks and favors the financials sector with a weighting of about 19%, followed by nearly 17% allocated to consumer discretionary stocks. Some of the fund’s top countries include China, Taiwan and India. SPEM’s performance is roughly in line with its competitors, IEMG and VMO, and makes another great alternative for exposure to emerging-market stocks excluding South Korea.
iShares MSCI Emerging Markets ETF (EEM)
EEM is one of the largest ETFs tracking emerging markets. The fund offers exposure to large and midsize stocks. While EEM has a higher expense ratio than its competitor VWO, at 0.7%, the fund is a liquid investment since there is an average daily trading volume of more than 30 million. This iShares fund holds about 1,200 stocks with its top positions in Taiwan Semiconductor Manufacturing (TSM) and Alibaba Group Holding (BABA). EEM follows the MSCI Emerging Markets Index, and its portfolio includes South Korean picks — a country that is excluded by its competitor VWO.
iShares MSCI Brazil ETF (EWZ)
A very different approach to emerging-market investing is to focus on a specific geography. And one of the most popular country-specific, emerging-market ETFs is this Brazil-focused offering that commands about $6 billion in total assets and an average volume of nearly 28 million shares daily. That makes it more popular than some globally focused emerging-market ETFs on Wall Street. Its 55 or so holdings include not only megaminer Vale (VALE), which you can buy in a conventional stock account, but also some smaller picks you may not be able to access otherwise. The fund comes with an expense ratio of 0.59%.
Seven emerging-markets ETFs to consider:
— Vanguard FTSE Emerging Markets ETF (VWO)
— iShares Core MSCI Emerging Markets ETF (IEMG)
— Schwab Emerging Markets Equity ETF (SCHE)
— iShares JP Morgan USD Emerging Markets Bond ETF (EMB)
— SPDR Portfolio Emerging Markets ETF (SPEM)
— iShares MSCI Emerging Markets ETF (EEM)
— iShares MSCI Brazil ETF (EWZ)
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Update 07/09/21: This story was published at an earlier date and has been updated with new information.