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Best Emerging Market ETFs

The right emerging market fund has the potential to return significant profits, so I’ve found the best emerging market ETFs for 2023.

The evolving nature of emerging economies can create volatility, which is risky, but it can also generate greater returns than other types of ETFs. By investing in an ETF, you may be able to gain exposure to several sectors in these markets.

Discover: My guide to the Best ETF trading platforms UK.

The Best Emerging Market ETFs of December 2023

Here are 5 of the best emerging market ETFs to buy in December at a glance:

  1. Vanguard FTSE Emerging Markets ETF – Exposure to developing economies across the emerging markets sector
  2. iShares Core MSCI Emerging Markets ETF – Offers exposure to South Korea as an emerging market
  3. SPDR Portfolio Emerging Markets ETF – An extremely well-diversified ETF
  4. Schwab Emerging Markets Equity ETF – Leans heavily on financial services and energy sectors
  5. KraneShares S&P Pan Asia Dividend Aristocrats Index ETF – For investors who want maximum exposure to Asia

Note: This is not a personal recommendation, nor does it constitute financial advice. Do not invest in these emerging market ETFs based exclusively on what you read in this article. You should always conduct your own research before investing in new financial instruments.

1. Vanguard FTSE Emerging Markets ETF (VWO)

VMO has had the largest ETF within the emerging market space over the past year. As well as holding more total assets under management than most, its dividend yield in 2022 was strong, and the annual charge is low at 0.08%. In fact, its low expense ratio and strong performance in recent years are the main reasons most people invest in VMO as a long-term holding.

What also makes this fund attractive for investors, particularly those who may be new to emerging markets, is that it’s balanced. It has exposure to developing economies across the emerging markets sector, and unlike some, it does not focus too heavily on China.

Finally, this fund uses the FTSE Emerging Index instead of the MSCI Index. The FTSE Index tracks the top 90% of stocks by market capitalisation and excludes the bottom 10%. In contrast, the MSCI Index tracks the top 85% and excludes the bottom 15%.

There is a strong weighting toward Chinese companies such as Tencent and Alibaba. However, its top ten holdings also include Reliance Industries Ltd. (India), Housing Development Finance Corporation Ltd. (India), and Vale Do Rio Doce (Brazil). The Vanguard FTSE Emerging Markets ETF share price during my research was $38.89, and its three-year return was 6.14%.

  • Fund size: $97.2 billion
  • Annual charge: 0.08%
  • Dividend yield: 3.29% (2022)
  • Who is this ETF best for? Investors who want a long-term holding in a large ETF with low annual fees and a strong dividend yield.

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iShares Core MSCI Emerging Markets ETF (IEMG)

iShares MSCI Emerging Markets ETF (EEM) has long been among the top three largest funds in this sector, but in recent years, IEMG has become popular. IEMG launched in 2012 as a cheaper alternative to EEM. It’s long been seen as a low-cost ETF aimed at buy-and-hold investors.

IEMG has lower fees than EEM, and it has more diversification in the sense that its portfolio includes smaller-cap companies that its older brother ignores. As a general sentiment, investors lean more towards IEMG as a long-term holding, while active traders prefer EEM.

Another notable fact is that IEMG follows the MSCI Emerging Markets Index. This means it classifies South Korea as an emerging market. In contrast, ETFs such as VWO and SCHE track indices that classify South Korea as a developed market. Therefore, if you want exposure to South Korea as an emerging market, this ETF might be best.

The iShares Core MSCI Emerging Markets ETF share price during my research was $48.41 Its top ten holdings include some of the biggest companies in China, including Taiwan Semiconductor Manufacturing Co., Ltd., Tencent, and Alibaba. My research found its three-year return was 5.79%.

  • Fund size: $69.47 billion
  • Annual charge: 0.09%
  • Dividend yield: 2.12% (2022)
  • Who is this ETF best for? Investors who want an ETF with a large total amount of assets and that counts South Korea as an emerging market.

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3. SPDR Portfolio Emerging Markets ETF (SPEM)

This fund has over 1,000 assets under management, which makes it an extremely well-diversified ETF. Its top ten holdings are companies from China and, moreover, Asia as a whole, including Taiwan Semiconductor Manufacturing Co Ltd, Tencent Holdings Ltd, and Alibaba Group Holding Ltd.

Additionally, its emerging market equities cover a variety of sectors, including financial services, information technology, consumer cyclicals, and communication services. What’s more, this ETF is fairly cheap.

During my research, the SPDR Portfolio Emerging Markets ETF (SPEM) share price was $33.88. Its return over the six months to May 2023 was 14.74%. Over three years, this fund returned 5.95% to investors, but the five-year return was lower at 0.30%.

  • Fund size: $6.9 billion
  • Annual charge: 0.11%
  • Dividend yield: 2.70% (2022)
  • Who is this ETF best for? This ETF might be best suited to investors who want a diversified fund with a strong focus on Asian markets and solid dividend yields.

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4. Schwab Emerging Markets Equity ETF (SCHE)

The Schwab Emerging Markets Equity ETF is similar to VWO in that it has hundreds of stocks spread across dozens of countries. It does lean heavily on the financial services and energy sectors, with Tencent Holdings Ltd. and Alibaba Group Holding Ltd. (both based in China) being among its top holdings.

However, SCHE does also have a large stake in Reliance Industries Ltd., which gives this ETF exposure to India. The share price for the Schwab Emerging Markets Equity ETF during my research was $24.17.

I discovered it had a six-month return of 15.24% but one-year returns of -5.90%. Over three years, however, this fund returned 5.15% to investors. Its expense ratio is fairly low for an ETF of this kind.

  • Fund size: $8.5 billion
  • Annual charge: 0.11%
  • Dividend yield: 2.30% (2022)
  • Who is this ETF best for? Investors who want an emerging markets ETF that focuses on large cap stocks in China and India with a low expense ratio.

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5. KraneShares S&P Pan Asia Dividend Aristocrats Index ETF (KDIV)

This emerging market ETF might be best for investors and traders who want maximum exposure to Asia. KraneShares S&P Pan Asia Dividend Aristocrats Index ETF has a particular focus on China and assets that offer high dividends. Brendan Ahern, chief investment officer at KraneShares, noted that because China has the second-largest economy in the world, it stands out among emerging markets.

KDIV is designed to offer exposure to businesses in China, Japan, and other Asian countries that have increased their dividends over a sustained period. Although increased dividends aren’t always a sign of success, they can be used as a performance marker.

My research showed that the KraneShares S&P Pan Asia Dividend Aristocrats Index ETF share price was $27.04. It’s a fairly new fund that launched in 2022, so long-term returns aren’t available. However, six-month data says it returned 26.62%. The one other thing to note is that this ETF has a 0.69% expense ratio.

  • Fund size: $2.69 million
  • Annual charge: 0.69%
  • Dividend yield: 0.82% (2022)
  • Who is this ETF best for? Investors who want an ETF that focuses on the highest-paying dividend stocks in Asia.

Best Range of ETFs at InvestEngine

  • Choose from over 550+ ETFs
  • Invest online or via the app
  • Buy, sell or rebalance in just one click

Whenever you invest, your capital is at risk. Minimum investment £100, T&Cs apply.

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How to invest in Emerging Market ETFs

An ETF is a fund that owns a basket of assets; in emerging market ETFs, those assets are stocks in publicly traded companies from emerging countries. The ETF tracks the collective performance of these stocks, and its value rises or falls accordingly.

You can invest in an emerging market ETF in the same way you buy stocks in a company such as Samsung Electronics. Alternatively, you can speculate on price movements (i.e., go long or short) by trading ETFs using contracts for difference (CFDs). The approach you use will be a matter of personal preference.

What are emerging markets ETFs?

Emerging markets ETFs are exchange-traded funds (ETFs) that focus on stocks of companies based in emerging economies (aka emerging market stocks).

What is an emerging markets economy?

An emerging country is one that’s growing and becoming more engaged with global markets. A developed economy is one that, in general, has a strong financial regulatory system, high incomes per capita, and active (i.e., liquid) debt and equity markets.

A developed economy is financially strong and capable of trading with other nations on a global scale. Developing countries and continents, aka emerging economies, are moving towards this state. They’re starting to increase their economic output; income per capita is rising, and their financial markets are growing. What’s more, companies and financial institutions within emerging markets are beginning to trade more on an international level.

Emerging economies in 2023 are Brazil, Argentina, Colombia, Mexico, Poland, Peru, and Hungary. Other emerging markets, according to S&P Global’s 2023 Outlook report, include Thailand, China, India, South Africa, Saudi Arabia, and Malaysia.

Below developing countries in terms of economic development are frontier markets. In general, frontier markets carry more risk than emerging economies because they are often politically unstable, have poor financial regulatory systems, and have low liquidity.

Still, some investors can find opportunities in a frontier market. The point here is that you should know that there is a hierarchy that goes from developed markets, to emerging markets, to frontier.

Ranking the best emerging markets ETFs

You can’t assess the performance and growth potential of an ETF based on price alone. A low-cost ETF might look good on the surface, but the companies it tracks might have a number of hidden risks. To determine whether a fund has growth potential, I assessed my top five emerging markets ETFs for 2023 using three main criteria:

Diversification: In general, highly diversified funds are lower-risk. That’s because the risks are being spread across multiple companies. If a fund has ten holdings (i.e., companies) but 75% of its capital is in just two, a lot is riding on those two companies. It’s generally good to have an even spread of holdings.

Expense Ratio: This is the amount you’re charged for investing in an ETF. The lower the expense ratio, the less you pay. An ETF with a low total expense ratio could provide better returns than one with a better performance rate by virtue of costing you less to have a stake in it.

Spreads: The cost of buying and selling shares matters. The more available shares are (i.e., liquidity), the easier it is to buy or sell. This means the spreads (costs) will be lower. This is another important factor to consider when deciding whether or not to invest in or trade ETFs.

Why should I invest in emerging market ETFs?

All investments and trades carry a certain amount of risk, but emerging markets may present more than developed economies. Because the countries are still evolving in terms of trade and financial regulations, their stock markets can be more volatile.

The counterpoint is that volatility can offer a greater upside for growth. That’s why emerging markets are often attractive for investors and traders who want to diversify.

Best Emerging Market ETFs FAQs

Are emerging markets high-risk?

Emerging markets can be higher-risk investments because they focus on indices in evolving economies. This creates volatility, which increases risk, but it also creates the potential for positive returns.

Are emerging markets ETFs a good investment?

Emerging markets ETFs can be a good investment because you gain exposure to entire continents that house companies with the potential to grow significantly. However, they aren’t risk-free.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial situation.

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