5 Biggest Emerging Markets ETFs That Investors Should Know About
The term "emerging markets" was first coined in 1981 by the International Finance Corporation (IFC) to propose a new global investment fund for stock markets in developing countries. IFC’s Antoine van Agtmael thought of it to replace the rather negative connotation of ‘third world’ which was otherwise used for these countries.
The term ‘emerging markets’ suggested process and dynamism, and very rightly so. Today, these economies dominate the list of the fastest growing economies in the world. The term is now used universally across the financial world to describe investment in developing economies.
While these countries represent a great investing opportunity, it is never easy to invest beyond borders for the U.S. retail investors. Although they can invest in select stocks listed as American Depository Receipts (ADRs) on the established exchanges such as the NYSE or Nasdaq, these investments opportunities are limited to few stocks.
On the other hand, emerging market exchange traded funds (ETFs) open a plethora of choice and exposure to U.S. investors while reducing the concentration risk and hassles of managing individual stock portfolio.
Here's a look the some of the biggest emerging market ETFs.
With a whopping $65 billion as assets under management, Vanguard FTSE Emerging Markets ETF (VWO) is the biggest emerging market ETF. Launched in 2005, the ETF has a huge portfolio of approximately 4,700 holdings with a large cap tilt across companies in emerging markets. The top ten stock holdings are Tencent, Alibaba, Taiwan Semiconductor, Naspers, China Construction Bank, Ping An Insurance, Reliance Industries, Industrial & Commercial Bank, China Mobile and Petroleo Brasiliero which add up to 20.40% of the portfolio. The fund tracks its underlying benchmark index FTSE Emerging Markets All Cap China A Inclusion Index. It has an expense ratio of 0.12% and has delivered 14.13% returns year-to-date (YTD).
Next is the iShares Core SMCI Emerging Markets ETF (IEMG). The ETF has $60.43 billion as assets and a portfolio of 2,225 stocks across different market capitalizations in emerging market equities. The top sectoral allocations are financials, information technology, consumer discretionary, communication and materials. In terms of geographical allocation, China, South Korea, Taiwan, India and Brazil are the top five locations which add up to 70.27% while the top ten stocks hold 22.13% of the assets. The ETF has an expense ratio of 0.14% and has delivered 11.43% returns YTD.
Launched in 2003, iShares MSCI Emerging Markets ETF (EEM) tracks the MSCI Emerging Markets Index. With a portfolio of approximately 950 stocks, the fund is diversified across 11 sectors with financials, information technology, consumer discretionary and communications having the maximum weightage; these sectors total up to 64.85%. The fund provides exposure to mid and large cap stocks across thirteen emerging markets with China dominating one-third of the portfolio. The ETF has assets to the tune of $35.33 billion with 0.67% as the expense ratio and 12.16% as YTD returns.
Schwab Emerging Markets ETF (SCHE) is the next ETF on the list. Launched in 2010, the fund tracks the FTSE Emerging Index and has net assets worth $5.93 billion. It has a low expense ratio of 0.13%, portfolio turnover of 14.59% and has delivered 13.05% returns YTD. The fund provides exposure to ten emerging economics with 57% of its portfolio allocated towards China, Taiwan and India. Its top ten stock holdings add up to 24.35%; within the top ten stocks, six are China-based, two are Indian, and one each from Taiwan and South Africa.
The next is the SPDR Portfolio Emerging Markets ETF (SPEM). The fund was launched in 2007 and is among the cheapest emerging markets ETFs with an expense ratio of 0.11%. It tracks the S&P Emerging BMI Index and has a portfolio of around 1,500 stocks. The top four sectoral allocations are towards financials, consumer discretionary, communications and information technology. The portfolio is spread across 29 countries which includes minor allocations to the U.S., and UK as well while China constitutes one-third of the portfolio followed by Taiwan and India. The fund posted 12.36% returns YTD and has $2.9 billion as assets under management.
With over 70 ETFs representing the emerging markets category, there is a huge variety for investors. Given the convenience, cost-efficiency and deep exposure that these ETFs provide, they are the best fit for any U.S. investors looking to add some geographical diversification towards emerging markets to one’s portfolio.
Ranking based on assets under management. Data based on fact sheets, websites of respective ETFs.
The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.