There is a wide range of ETFs focusing on emerging markets (emerging market ETFs). The problem is that not all international investment funds are created equal. Two of the biggest obstacles that investors may face when venturing into emerging markets are minimizing transaction costs and locating large, easily tradeable investments. Despite their low expense ratios, many popular index funds continue to attract millions of investors and millions of dollars in assets.
Here is an overview of the most valuable emerging market exchange-traded funds (ETFs) in terms of assets under management.
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Definition of Emerging Market ETFs
Exchange-traded funds (ETFs) that invest primarily in companies based in regions with rapidly growing economies, such as those in Latin America, Asia, and Eastern Europe, are known as emerging market ETFs. Unless otherwise specified, emerging market ETFs should track passively managed indexes that include equities from various countries.
The companies that make up emerging market exchange-traded funds (ETFs) are a part of a sector that has the potential to provide investors with attractive long-term growth prospects. When considering their investment horizons, many investors may find that the higher returns given by some developing market economies are too good to pass up. These countries are distinguished by their rapid economic development and the abundance of natural resources used at an alarming rate by industrialized nations.
Although there is potential for financial gain by investing in emerging countries, there may be a steep learning curve associated with doing so. A typical investor may prefer to invest in an emerging market ETF rather than trying to track down and evaluate individual securities in an emerging market country due to navigating factors such as geopolitical difficulties, political risk, and less transparency.
As an investor, you can narrow your focus on the emerging market you care about most, whether a specific location or asset class, by using an exchange-traded fund (ETF) dedicated to the emerging market. Among the large group of ETFs that invest in emerging markets, some funds specialize in a particular market cap range, dividend yield, or an emphasis on a specific industry.
The Top 5 Largest Emerging Market ETFs
1. Vanguard FTSE Emerging Markets ETF (VWO)
Since its inception in 2005, Vanguard FTSE Emerging Markets ETF (VWO) has grown to become the largest exchange-traded fund (ETF) offering exposure to emerging markets worldwide. The ETF replicates the performance of companies across various market sizes in emerging markets by following the FTSE Emerging Markets All Cap China-A Inclusion Index. Over time, the ETF’s benchmark has evolved to reflect market conditions. China makes up 32.1% of the ETF’s holdings, followed by Taiwan (18.4%), India (16.8%), Brazil (6.5%), and Saudi Arabia (5.3%). VWO’s expenditure ratio is 0.08% on assets of $72.42 billion. For the year thus far, the ETF is down 16.02 percent. The portfolio is not overly concentrated on just a few stocks since only the top 10 holdings account for 19.8% of the total.
The Top Holding Lists
- Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
- Tencent Holdings Ltd. (TCEHY)
- Alibaba Group Holding Ltd. (BABA)
- Reliance Industries Ltd.
- Meituan (MPNGF)
- Infosys Ltd. (INFY)
- Vale S.A. (VALE)
- China Construction Bank Corp. (CICHY)
- Petroleo Brasileiro S.A. (PBR)
- Al Rajhi Bank
2. iShares Core MSCI Emerging Markets ETF (IEMG)
The MSCI Emerging Markets Investable Market Index is followed by the iShares Core MSCI Emerging Markets ETF (IEMG), which debuted in October 2012 and gives investors exposure to large-, mid-, and small-capitalization emerging market equities in 24 different emerging markets. The cost ratio for this ETF is 0.09%, and it manages $67.14 billion in assets. Most of the assets (54%) are spread across just three sectors: financials, IT, and consumer discretionary. Country-wise, the most vulnerable regions are China, Taiwan, India, and South Korea. The top ten holdings account for about 20.71% of the total, while the ETF is down 16.84% yearly.
The Top Holding Lists
- Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
- Tencent Holdings Ltd. (TCEHY)
- Samsung Electronics Co. Ltd. (SSNLF)
- Alibaba Group Holding Ltd. (BABA)
- Reliance Industries Ltd.
- Meituan (MPNGF)
- Infosys Ltd. (INFY)
- China Construction Bank Corp. (CICHY)
- JD.com (JD)
- Vale S.A. (VALE)
3. iShares MSCI Emerging Market ETF (EEM)
The iShares MSCI Emerging Market ETF (EEM) is the third largest exchange-traded fund (ETF) because it gives investors access to large and mid-sized companies in emerging economies. EEM follows the MSCI Emerging Markets Index, which comprises 1,398 stocks representing roughly 85% of each nation’s free float-adjusted market capitalization. Allocations to China (30.57%), Taiwan (15.45%), India (13.64%), and South Korea (12.57%) follow in order of increasing distance from the investor. The developing markets portfolio is 22.57%, with Brazil receiving 5.35 percent. With $26.7 billion in assets, and an expense ratio of 0.68 percent, this ETF is a viable investment option. Year-to-date, EEM has lost 17.44%. The top ten investors hold twenty-three percent and change.
The Top Holding Lists
- Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
- Tencent Holdings Ltd. (TCEHY)
- Alibaba Group Holding Ltd. (BABA)
- Reliance Industries Ltd.
- Meituan (MPNGF)
- Infosys Ltd. (INFY)
- Vale S.A. (VALE)
- China Construction Bank Corp. (CICHY)
- Petroleo Brasileiro S.A. (PBR)
- Al Rajhi Bank
4. Schwab Emerging Markets Equity ETF (SCHE)
In January 2010, Schwab introduced their Emerging Markets Equity Exchange Traded Fund (SCHE). SCHE follows the FTSE Emerging Index to give investors access to 20 developing economies. An index is a comprehensive tool for gauging the performance of the most liquid large and mid-cap corporations in emerging economies. The technology industry receives the largest share, followed by financial institutions. Top country allocations go to China, Taiwan, and India. SCHE has an expense ratio of 0.11% on assets of $8.45 billion under management. The top ten shareholders hold a total of 22.18 percent. Year-to-date, the ETF has lost 15.33%.
The Top Holding Lists
- Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
- Tencent Holdings Ltd. (TCEHY)
- Alibaba Group Holding Ltd. (BABA)
- Reliance Industries Ltd.
- Meituan (MPNGF)
- Infosys Ltd. (INFY)
- China Construction Bank Corp. (CICHY)
- Vale S.A. (VALE)
- JD.com (JD)
- Al Rajhi Bank
- Housing Development Finance Corporation (HDB)
5. SPDR Portfolio Emerging Markets ETF (SPEM)
The SPDR Portfolio Emerging Markets ETF (SPEM), which debuted in 2007, has $5.52 billion in assets under management, making it the fifth-largest emerging market ETF. The S&P Emerging BMI Index is what SPEM follows. To define and quantify the investable universe of publicly traded firms headquartered in emerging economies, S&P created the market capitalization-weighted S&P Emerging BMI Index. Information technology, financials, consumer discretionary, materials, and communication services account for 70% of index allocations, making them the index’s heavyweight sectors. Year-to-date, SPEM has dropped by 16.53 percent.
The Top Holding Lists
- Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
- Tencent Holdings Ltd. (TCEHY)
- Alibaba Group Holding Ltd. (BABA)
- Reliance Industries Ltd.
- Meituan (MPNGF)
- China Construction Bank Corp. (CICHY)
- Infosys Ltd. (INFY)
- Vale S.A. (VALE)
- JD.com (JD)
- Housing Development Finance Corporation (HDB)
- Hon Hai Precision Industry Co. Ltd. (HNHPF)
When selecting an emerging market exchange-traded fund, you can pick from a wide variety of choices, just like any other investment type. The MSCI Emerging Market Index is a widely followed gauge of performance in the emerging market segment. As an investment strategy, buying exchange-traded funds (ETFs) that track this index is a good option.