The 5 Largest Emerging Market ETFs and What to Know About Them

The term ‘emerging markets’ was coined in 1981 by International Finance Corporation’s Antoine van Agtmael to capture the essence of his proposal on a new global investment fund for stock markets in developing countries. The words ‘emerging markets’ is meant to suggest “progress, uplift, and dynamism.” Over the years, the term has been used in different connotations for various developing nations. However, at its core, it continues to describe investment opportunities in developing economies.

Today, many emerging economies are a part of the trillion-dollar club and considered drivers of global economic growth. Here’s an overview of the top emerging market exchange-traded funds (ETFs) in terms of assets under management.

1. Vanguard FTSE Emerging Markets ETF (VWO)

Launched in 2005, Vanguard FTSE Emerging Markets ETF (VWO) is the largest ETF that’s providing exposure to emerging markets around the world. The ETF tracks the FTSE Emerging Markets All Cap China-A Inclusion Index, which is a market-capitalization weighted index representing the performance of large-, mid-, and small-cap stocks in emerging markets. The benchmark for the ETF has seen changes over the years. The ETF provides highest exposure to China (32.1%), followed by Taiwan (18.4%), India (16.8%), Brazil (6.5%) and Saudi Arabia (5.3%). VWO has $72.42 billion as assets under management and an expense ratio of 0.08%. The ETF is currently down by 16.02% year-to-date. The top ten holdings add up to 19.8% of the portfolio, indicating low concentration in a few stocks. The top ten holdings are:

1. Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
2. Tencent Holdings Ltd. (TCEHY)
3. Alibaba Group Holding Ltd. (BABA)
4. Reliance Industries Ltd.
5. Meituan (MPNGF)
6. Infosys Ltd. (INFY)
7. Vale S.A. (VALE)
8. China Construction Bank Corp. (CICHY)
9. Petroleo Brasileiro S.A. (PBR)
10. Al Rajhi Bank

2. iShares Core MSCI Emerging Markets ETF (IEMG)

Launched in October 2012, the iShares Core MSCI Emerging Markets ETF (IEMG), tracks the MSCI Emerging Markets Investable Market Index and provides access to large-, mid- and small-capitalization emerging market equities across 24 emerging markets. The ETF has $67.14 billion as assets under management and an expense ratio of 0.09%. Currently, financials, information technology and consumer discretionary are the top three sectoral allocations adding up to 54% of the assets. In terms of countries, China, Taiwan, India and South Korea have the highest exposures. The top ten holdings add up to around 20.71% and the ETF is currently down by 16.84% year-to-date.

1. Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
2. Tencent Holdings Ltd. (TCEHY)
3. Samsung Electronics Co. Ltd. (SSNLF)
4. Alibaba Group Holding Ltd. (BABA)
5. Reliance Industries Ltd.
6. Meituan (MPNGF)
7. Infosys Ltd. (INFY)
8. China Construction Bank Corp. (CICHY)
9. JD.com (JD)
10. Vale S.A. (VALE)

3. iShares MSCI Emerging Market ETF (EEM)

The third largest ETF, iShares MSCI Emerging Market ETF (EEM) provides exposure to large- and mid-sized companies in the emerging markets. EEM tracks the MSCI Emerging Markets Index, which has 1,398 constituents, covering approximately 85% of the free float-adjusted market capitalization in each country. China, with 30.57% allocations, leads in country exposure, followed by Taiwan, India and South Korea at 15.45%, 13.64% and 12.51%, respectively. Brazil gets a 5.35% allocation with 22.57% in other emerging markets. The ETF has $26.7 billion as assets under management and an expense ratio of 0.68%. EEM is down by 17.44% year-to-date. The top ten holdings add up to 23.77%.

1. Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
2. Tencent Holdings Ltd. (TCEHY)
3. Samsung Electronics Co. Ltd. (SSNLF)
4. Alibaba Group Holding Ltd. (BABA)
5. Reliance Industries Ltd.
6. Meituan (MPNGF)
7. China Construction Bank Corp. (CICHY)
8. Infosys Ltd. (INFY)
9. Vale S.A. (VALE)
10. JD.com. (JD)

4. Schwab Emerging Markets Equity ETF (SCHE)

The Schwab Emerging Markets Equity ETF (SCHE) was launched in January 2010. SCHE provides exposure to 20 emerging markets by tracking the FTSE Emerging Index. The index provides a comprehensive means of measuring the performance of the most liquid large- and mid-cap companies in the emerging markets. In terms of sectors, technology has the highest allocation followed by banks. China, Taiwan and India hold the highest country allocations. SCHE manages $8.45 billion worth of assets and has an expense ratio of 0.11%. The top ten holdings add up to 22.18%. The ETF is down by 15.33% year-to-date.

1. Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
2. Tencent Holdings Ltd. (TCEHY)
3. Alibaba Group Holding Ltd. (BABA)
4. Reliance Industries Ltd.
5. Meituan (MPNGF)
6. Infosys Ltd. (INFY)
7. China Construction Bank Corp. (CICHY)
8. Vale S.A. (VALE)
9. JD.com (JD)
10. Al Rajhi Bank
11. Housing Development Finance Corporation (HDB)

5. SPDR Portfolio Emerging Markets ETF (SPEM)

Launched in 2007, the SPDR Portfolio Emerging Markets ETF (SPEM) is the fifth largest emerging market ETF with $5.52 billion as assets under management. SPEM tracks the S&P Emerging BMI Index. The S&P Emerging BMI Index is a market capitalization weighted index designed to define and measure the investable universe of publicly traded companies domiciled in emerging markets. The sectoral heavyweights in the index are information technology, financials, consumer discretionary, materials and communication services which together add to 70% of allocations. SPEM is down by 16.53% year-to-date.

1. Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
2. Tencent Holdings Ltd. (TCEHY)
3. Alibaba Group Holding Ltd. (BABA)
4. Reliance Industries Ltd.
5. Meituan (MPNGF)
6. China Construction Bank Corp. (CICHY)
7. Infosys Ltd. (INFY)
8. Vale S.A. (VALE)
9. JD.com (JD)
10. Housing Development Finance Corporation (HDB)
11. Hon Hai Precision Industry Co. Ltd. (HNHPF)

Overall, exchange-traded funds provide a low cost and efficient way to invest in other economies to reduce the country-specific risks.

Disclaimer: 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 report has been carefully prepared, and any exclusions or errors in it are totally unintentional. Scheme data, returns, and details based on factsheets and respective websites as May 19, 2022. ETFs considered in terms of size of AUM.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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