This post is for informational purposes only. It is not investment advice.
Emerging markets provide an intriguing yet complex part of the global investing landscape. Many developing economies are benefiting from favorable demographics, growing consumer markets, and shifting supply chains, but many also face currency fluctuations, political risk, and market volatility. For investors, exchange-traded funds (ETFs) offer a practical way to capture these growth opportunities while diversifying across companies, sectors, and countries. Emerging market ETFs give investors a way to participate in the growth of developing economies while benefiting from the built-in diversification of an exchange-traded fund.
In this post, we discuss three categories of ETFs that give retail investors access to emerging markets. We explain these different categories and how they differ so you can determine the approach that is right for you and your portfolio.
Broad Funds
The first category of emerging market ETFs to consider are broad market funds. These ETFs generally offer exposure to a wide range of countries and sectors. Funds like the Vanguard FTSE Emerging Market ETF (VWO) and the iShares Core MSCI Emerging Markets ETF (IEMG) fall into this category. VWO is one of the largest emerging market ETFs on the market, offering exposure to thousands of companies at an expense ratio of just 0.05% and a yield of about 2.78%. IEMG is similar but adds small-cap exposure to its mix, slightly increasing its breadth. Another long-standing option is the iShares MSCI Emerging Markets ETF (EEM), which has been a staple for institutions thanks to its deep liquidity, even though its expense ratio is higher at 0.72%. A variation on this type of ETF is the Columbia EM Core ex-China ETF (XCEM), which offers access to emerging markets without the heavy China weighting found in most other ETFs.
Investors looking for their first entry point into emerging market investing might consider these funds given their diversification and comparatively lower expense ratios.
Higher Volatility Broad ETFs
For investors seeking more return potential and willing to accept more risk, higher-volatility broad emerging market ETFs can provide that boost. For example, the WisdomTree Emerging Markets SmallCap Dividend Fund (DGS) targets small-cap companies across emerging markets while delivering a yield above 4.27%, making it a hybrid of growth and income. The WisdomTree Emerging Market High Dividend Fund (DEM) goes after high-yielding emerging market equities and offers a 5.94% dividend yield. The Freedom 100 Emerging Markets ETF (FRDM) takes a more unconventional approach by focusing on politically and economically “free” emerging markets, creating a concentrated portfolio that may look very different from a traditional EM index and can swing more sharply.
These ETFs offer a greater potential for returns and dividends, but they also come with greater risk and volatility compared to the more conservative funds mentioned above.
Country and Regional ETFs
Targeted country and regional ETFs allow investors to express more specific views on where they see opportunity. For example, the iShares MSCI India ETF (INDA) offers exposure to India at an expense ratio of 0.62%, providing investors convenient access to India’s potential growth. It also comes with the downside of being susceptible to India’s greater volatility. Similarly, the Franklin FTSE Taiwan ETF (FLTW) offers exposure to Taiwanese equities but with a heavy tilt toward technology and semiconductor companies, which reflects Taiwans’ dominant role in the global chip manufacturing industry. FLTW offers at a low 0.19% expense ratio. Other country ETFs include the iShares MSCI Brazil ETF (EWZ), the iShares MSCI South Korea ETF (EWY), and the iShares MSCI Mexico ETF (EWW) offer exposure to these respective countries. Other examples of regional ETFs include the Global X FTSE Southeast Asia ETF (ASEA), which focuses on growing Southeast Asian markets, and the VanEck Africa Index ETF (AFK), which provides exposure to African equities.
Conclusion
Emerging market ETFs offer accessible, diversified exposure to faster-growing economies. Though risks are higher and performance may lag local indexes, they remain a useful tool for investors seeking global diversification. Investors should be mindful of factors such as liquidity, expense ratios, and the volatility inherent in emerging markets. Ultimately, your choice among broad, higher-risk, or country-specific ETFs will depend on your risk tolerance, investment goals, and how actively you want to position your portfolio within emerging markets.