- Countries that are still trying to find their feet in the global economy are classified as emerging economies. <\/li>
- Historical performance indicates emerging markets outperformed international developed markets, despite being riskier and more volatile. <\/li>
- Emerging market ETFs provide investors with a safer avenue to expose their portfolios to these high-growth economies.<\/li>
- The best emerging market ETFs are EMB, SPEM, FNDE, VWO, XSOE, IEMG, and SCHE. <\/li>
- Assess these options based on historical performance, dividend yield, dividend growth, assets under management, and cost. <\/li><\/ul>\n\n\n\n\n\n
What are Emerging Market ETFs?<\/h2>\n\n\n\n
We cannot understand emerging market ETFs without talking about emerging market is. The former does not exist without the latter. When a country has a consistent and considerable gross domestic product (GDP) growth, a rise in the size of its middle class, a huge contribution to global production rates, and a potential for fast growth and investment, such a country is classified as an emerging market<\/a>.\u00a0<\/p>\n\n\n\n
![\"Emerging](\"https:\/\/investorimpactlab.com\/wp-content\/uploads\/2022\/01\/Screen-Shot-2022-01-03-at-7.28.40-PM-1024x376.png\")
Emerging Market ETFs: Annual Returns, Source: portfoliovisualizer.com<\/figcaption><\/figure>\n\n\n\n Compared to developed markets characterized by developed countries, emerging markets comprise countries that are still trying to find their feet in the global economy. Popular emerging market economies include Brazil, Russia, India, and China (BRIC), and all four countries are jointly responsible for 30% of global production. Others are South Africa, Egypt, Peru, Colombia, Mexico, and South Korea (MSCI, 2020). <\/p>\n\n\n\n
Therefore, emerging market ETFs focus on assets in the emerging market economies. The pooled funds from millions of investors are put into stocks of companies based in these countries. Besides stocks, the best emerging market ETFs also invest in debt securities or bonds issued by these countries\u2019 governments or their corporations and agencies. <\/p>\n\n\n\n
Why invest in Emerging Markets?<\/h2>\n\n\n\n
One of the best things that can happen to any investor is to \u2018be early.\u2019 Emerging markets are still in their growing phases, so they offer potentially exciting opportunities and even higher gains for early investors. Let\u2019s drive home this point with some numbers. <\/p>\n\n\n\n
Most emerging markets comprise about 10% of the global stock market and 25% of the international stock market (non-U.S. stock). This composition has outperformed both the developed markets and the U.S. stock market over the years. Historical performance has also shown that emerging markets offer higher diversification benefits. And that is because of their lower correlation to the U.S. stock market than the developed international markets. <\/p>\n\n\n\n
While we cannot deny the risks and high volatility associated with emerging markets, emerging market exchange-traded funds offer investors a safer avenue to expose their portfolios in these high-growth economies. But that\u2019s not all. <\/p>\n\n\n\n
Emerging market ETFs also ensure diversification by adopting an allocation strategy that prioritizes these upcoming markets. And the fact that you can find most of these emerging market ETFs on Nasdaq, New York Stock Exchange, and other major U.S. exchanges means they are liquid. As a result, you will have no problems buying or selling them. <\/p>\n\n\n\n
7 Best Emerging Market ETFs<\/h2>\n\n\n\n
![\"Emerging](\"https:\/\/investorimpactlab.com\/wp-content\/uploads\/2022\/01\/Screen-Shot-2022-01-03-at-7.29.07-PM-1024x509.png\")
Emerging Market ETFs: Performance Summary, Source: portfoliovisualizer.com<\/figcaption><\/figure>\n\n\n\n Emerging markets are synonymous with options. Finding the best fit out of the myriad of options will take you so much time and effort. But not to worry, I have researched and compiled a list of the best emerging market ETFs you should not miss. <\/p>\n\n\n\n
1. SPDR Portfolio Emerging Markets ETF (SPEM)<\/h3>\n\n\n\n
The first emerging-market ETF I will discuss is the SDPR Portfolio Emerging Market ETF, tracking the S&P Emerging BMI Index. It is one of the best ways to expose your portfolio to emerging market equities. In terms of geographical spread, China, Taiwan, and India hold this fund\u2019s largest allocations \u2013 36%, 16.9%, and 14.2%, respectively. <\/p>\n\n\n\n
There are about 3,000 holdings in SPEM\u2019s portfolio, worth over $5.5 billion. In addition, the top 10 companies on the list hold 20% of the entire portfolio. In terms of weight, the portfolio favors Financials Services (19.3$), followed by technology (16.8%) and consumer discretionary (16.3%). <\/p>\n\n\n\n
With an expense ratio of 0.11%, the SPDR Portfolio Emerging Markets ETF (SPEM) is one of the cheapest options on this list. <\/p>\n\n\n\n
2. iShares JPMorgan USD Emerging Markets Bond ETF (EMB)<\/h3>\n\n\n\n
If you are a \u2018safety first\u2019 investor looking to expose your portfolio to minimum risks, then you should consider the iShares JPMorgan USD Emerging Markets Bond ETF (EMB). EMB invests in U.S. dollar-denominated government bonds issued by emerging market economies. Therefore, it offers higher diversification with government bond fund owning debt positions in over 30 emerging market countries. <\/p>\n\n\n\n
EMB is not up there when it comes to price appreciation. That said, you can expect excellent performance in terms of dividends. For instance, it recorded a 7% return over the past year, while paying between 3.96% and 5.64% in dividends over the past years. <\/p>\n\n\n\n
EMB\u2019s 0.39% expense ratio is relatively affordable, and it offers exposure to over 600 holdings worth $19 billion.<\/p>\n\n\n\n
3. Vanguard FTSE Emerging Markets ETF (VWO)<\/h3>\n\n\n\n
Now let\u2019s talk about the most popular emerging market ETF – the Vanguard FTSE Emerging Markets ETF (VWO). How popular, you ask? VWO holds over 5,000 stocks from about 25 countries and is worth over $87 billion in assets. It is also super cheap, with just a 0.10% expense ratio. <\/p>\n\n\n\n
The fund invests in stocks of Chinese companies headquartered in Hong Kong and \u201cA Class\u201d stocks of companies listed in Shanghai and Shenzhen. As a result, Hong Kong (32%) and China (185) hold the largest chunk of VWO\u2019s portfolio. In addition, 24% of the portfolio\u2019s weight is spread across the top 10 holdings of the portfolio, making it slightly top-heavy. <\/p>\n\n\n\n
VWO tracks the FTSE Emerging Markets All Cap China A Inclusion Index and is issued by Vanguard<\/a>.<\/p>\n\n\n\n
4. WisdomTree EM ex-State-Owned Enterprises ETF (XSOE)<\/h3>\n\n\n\n
A quick background check on WisdomTree would tell you how trusted they are as an asset management firm. And the WisdomTree EM ex-State-Owned Enterprises ETF (XSOE) is one of its many ETFs. XSOE can expose your portfolio to emerging market stocks of non-state-owned companies. According to WisdomTree, a company is state-owned if the government of the region holds over 20% of its ownership. <\/p>\n\n\n\n
In terms of performance, XSOE ranks high with about 20% returns over the previous year. Technology (23.4%), consumer discretionary (19.6%), and financials (13.1%) are the three largest sectors by weight in XSOE\u2019s portfolio. It is also slightly top-heavy, with the top 10 holdings accounting for 31% of the entire portfolio. <\/p>\n\n\n\n
Since its inception in 2014, XSOE has amassed over 650 holdings and boasts close to $4 billion in total assets worth. The expense ratio is 0.32%.<\/p>\n\n\n\n
5. iShares Core MSCI Emerging Markets ETF (IEMG)<\/h3>\n\n\n\n
The iShares Core MSCI Emerging Markets ETF (IEMG) is a great option for investors interested in low-cost investing. It tracks the MSCI Emerging Markets Investable Market Index and focuses on mid- and small-cap emerging market companies. <\/p>\n\n\n\n
The geographic diversification here is relatively higher, with South Korea accounting for 14% of the portfolio, thereby reducing the exposure to China to just 6%. Other emerging market economies in the mix are Hong Kong (28%), Taiwan (15%), and India (11%). <\/p>\n\n\n\n
IEMG has over 2,600 holdings in its portfolio, over $75 billion in assets, and an expense ratio of 0.11%. It is issued by iShares.<\/p>\n\n\n\n
6. Schwab Fundamental EM Large Company Index ETF (FNDE)<\/h3>\n\n\n\n