9 Best Emerging-Market ETFs
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 nine 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 $50 billion in net assets. Its strategy spans more than 5,000 individual stocks from across the globe, though admittedly it is a bit top-heavy. Geographically, more than 40% of the assets are in China. From a sector perspective, more than 25% of the fund is dedicated to financials. But 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, it is also among the cheapest options for investors.
iShares Core MSCI Emerging Markets ETF (IEMG)
Close behind in the list of biggest and best emerging-market ETFs, with nearly $50 billion in assets, is IEMG. The fund owns a slightly smaller portfolio of stocks at nearly 2,500 positions. It is a bit more diversified geographically, with a better distribution and a little smaller allocation in China. It also has a somewhat smaller allocation in financials for a better division among sectors. One knock, which potential investors should know, is that roughly 15% of total assets are in the top three holdings of Alibaba Group (BABA), Tencent Holdings (TCHEY) and Taiwan Semiconductor Manufacturing (TSM). This fund also comes with a relatively small expense ratio at 0.13%.
Schwab Emerging Markets Equity ETF (SCHE)
Although smaller than these first big funds, SCHE is no slouch with more than $6 billion under management. The fund has a similar makeup, with a focus on China and financials, but the list gets even narrower with about 1,500 total components. Generally, that means this fund is cutting out the smaller names. This fact is evidenced by a median market cap of about $35 billion for the Schwab emerging-market fund, while the Vanguard and iShares offerings both have a median market cap of about $25 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 Edge MSCI Min Vol Emerging Markets ETF (EEMV)
Of course, a more direct way to limit the risk of your emerging-market investments is to consider this "minimum volatility" fund. The basis of this fund is a broad MSCI index of emerging-market stocks. But iShares also applies a quantitative screening methodology to determine which stocks have historically declined less than their peers during market downturns and then spits out a more focused group of fewer than 350 holdings. Perhaps unsurprisingly, you'll see more stocks like Taiwan's Chunghwa Telecom (CHT) and fewer tech stocks within this fund as a result. It also comes with a slightly higher expense ration of 0.25%.
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 ETFs at the moment is this Brazil offering that commands more than $5 billion in total assets and average volume of more than 30 million shares daily. That makes it more popular than some globally focused emerging-market ETFs on Wall Street. Its 60 or so holdings include not only mega-miner 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%.
iShares MSCI China ETF (MCHI)
Neck and neck with this Brazil fund is a similar offering from iShares with a focus on China. It, too, boasts impressive popularity, with about $5 billion in assets and average volume of almost 3.9 million shares daily. Although investors can choose from a host of China ETFs, this pick remains the go-to way to play the region. The reasons are pretty obvious, too: MCHI offers a balanced portfolio of about 600 stocks in this key emerging market with a comparatively attractive expense ratio of just 0.59%, or $59 annually on $10,000 invested.
iShares MSCI India ETF (INDA)
Rounding out the list of the most popular individual economies in emerging markets, INDA offers country-specific exposure to India. With more than 1.3 billion residents, India is not only the world's largest democracy but also one of the fastest growing. Gross domestic product will likely be negative for India in 2020, as it will be for many nations in the wake of the pandemic. But the country's pace of expansion was almost 7% in 2018 and roughly 5% in 2019. Those growth rates are the envy of other nations, and they're a big reason this fund commands almost $3 billion in assets and regularly sees volumes above 6 million shares daily. Its expense ratio, at 0.69%, is also comparable to others on the list.
iShares JP 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. No single nation represents more than about 4.3% 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 4.5%.
VanEck Vectors JP Morgan EM Local Currency Bond ETF (EMLC)
A twist on the previously mentioned bond fund, the VanEck Vectors JP Morgan EM Local Currency Bond ETF is a play on emerging-market debt, but its bonds are denominated in local currencies. This may sound like a minor distinction, but currency exchange rates can fluctuate significantly over time -- potentially turning a profitable investment negative if things go awry. EMLC offers a similar makeup to the iShares fund and a similar yield of about 4.5%. Still, investors won't have to worry about the variable of currency exchange rates in this emerging-market ETF.
Nine 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 Edge MSCI Min Vol Emerging Markets ETF (EEMV)
-- iShares MSCI Brazil ETF (EWZ)
-- iShares MSCI China ETF (MCHI)
-- iShares MSCI India ETF (INDA)
-- iShares JP Morgan USD Emerging Markets Bond ETF (EMB)
-- VanEck Vectors JP Morgan EM Local Currency Bond ETF (EMLC)
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