Emerging market exchange-traded funds (ETFs) remain hugely popular as online investments even during the post-Covid economic recovery period. However, investing in emerging markets is challenging: it offers high returns but involves significant risks as well.
Some market experts believe that choosing the right ETFs at the right time is the safest way to invest in this sector. Therefore, we have identified the best emerging markets ETFs to buy, and we present our list along with our suggestions for how to make the most of these investment opportunities.
Where Can I Trade Emerging Markets ETFs?
Finding the best broker for trading ETFs is always crucial because the cost, trading platform, and range of markets can vary vastly between brokers. Make sure you choose a regulated broker such as one of those on our list.
What is an Emerging Markets ETF?
An emerging market refers to a less economically developed country. However, emerging countries are on the path to becoming developed markets, so they’re not necessarily the poorest countries. Although they have lower per capita income compared to the developed countries in North America and Europe, the emerging markets are ones that you’d consider to be already quite successful: China, Brazil, South Korea, Malaysia, Taiwan, United Arab Emirates, to name a few.
An emerging markets ETF is a collective investment (i.e, many pooled investors) in several stocks, stock indices, or other assets with a particular theme. In this case, the theme is “emerging economies”. ETFs are different from mutual funds because the former can be bought or sold any time during the trading day (like individual stocks) whereas the latter can only change hands once per day.
Invest in the Emerging Markets ETFs in 3 Steps
Open a Trading Account
Before opening an account, make sure the broker allows trading ETFs and has access to the global emerging markets ETFs. Also, check trading commissions and service fees including deposit and withdrawal charges. Then fill out the account application and file any required identity documents.
Choose an Emerging Markets ETF
Combine fundamental research and technical analysis (i.e., the price chart) to determine which emerging markets ETF to buy… and when. Find your chosen ETF in your broker’s categorised list, which should be searchable.
Place Your Trade
Select the ETF you wish to buy, specify the amount you want to invest, and place your order to buy immediately (at the latest market price) or later (when the price hits a certain level).
Best Emerging Markets ETFs to Buy Now
Based on our research, we have created a “top ten” list of emerging markets ETFs:
- Vanguard FTSE Emerging Markets ETF (VWO)
- iShares Core MSCI Emerging Markets ETF (IEMG)
- Schwab Emerging Markets Equity ETF (SCHE)
- iShares Edge MSCI Min Vol Emerging Markets ETF (EEMV)
- iShare MSCI Brazil ETF (EMZ)
- SPDR Portfolio Emerging Markets ETF (SPEM)
- iShare MSCI China ETF (MCHI)
- iShare MSCI India ETF (INDA)
- iShare JP Morgan Emerging Markets Bond ETF (EMB)
- VanEck Vector JP Morgan EM Local Currency Bond ETF (EMLC)
Let’s dig deeper into the top five of them.
1. Vanguard FTSE Emerging Markets ETF (VWO)
The Vanguard FTSE Emerging Markets ETF is the largest and most popular ETF that boasts more than $111.5 billion in net assets at the time of writing. With an expense ratio of 0.10%, VMO is one of the most affordable ETFs in the market. It holds more than 5200 individual stocks across the globe with over 40% of its assets in China. In May 2021, the YTD daily total return of VMO is 6.08%, with a dividend yield of around 1.83%.
2. iShares Core MSCI Emerging Markets ETF (IEMG)
The iShares Core MSCI Emerging Markets ETF was debuted in 2012 as a low-cost iShares series. IEMG is recognised as the most geographically diversified ETF with over $50 billion net assets and a portfolio of 2500+ stocks at the time of writing. Taiwan Semiconductor Manufacturing (TSM), Alibaba Group (BABA), Tencent Holdings (TCHEY), and Samsung Electronics Co Ltd are some of the fund’s top holdings. The expense ratio of IEMG is 0.11%, which is relatively lower than other top-class ETFs.
3. Schwab Emerging Markets Equity ETF (SCHE)
The Schwab Emerging Markets Equity ETF mostly invests in the stocks listed in the FTSE Emerging Index. Market experts find SCHE comparable to VWO from Vanguard because it seeks to track the FTSE Emerging Index. The fund holds over $9 billion in assets and approximately 1,500 total stocks at the time of writing. The net expense ratio of SCHE is only 0.11%, which is the same as VMO and IEMG costs. In May 2021, the year-to-date daily total return was reported as 5.32% with a 1.99% yield.
4. iShares Edge MSCI Min Vol Emerging Markets ETF (EEMV)
The iShares Edge MSCI Min Vol Emerging Markets ETF is best known for its lower volatility characteristics compared to the broader emerging equity markets. EEMV focuses on emerging market stocks and carries potentially less risk on investments. Its net asset value is $4.02 billion at the time of writing, with a dividend yield of 2.34%, and a YTD daily total return of 3.76%. However, the net expense ratio of EEMV is 0.25% which is relatively higher than other top emerging markets ETFs.
5. iShares MSCI Brazil ETF (EMZ)
The iShares MSCI Brazil ETF is one of the most popular emerging markets ETFs for investing in Latin America. The fund holds more than $6 billion in total assets at the time of writing, with an average volume of 30 million shares traded per day. Its dividend yield is 1.78% and the YTD daily return is 2.10% as of May 2021. The net expense ratio of EMZ is 0.59%, and EMZ is ranked as number 4 among the best-emerging markets ETFs in Latin America.
Expert Tip on Investing in Emerging Markets ETFs“ Managing risk is a key factor when investing in emerging markets for maximum returns. ETFs have some diversification built-in (compared with single stocks) but — just like with a single stock — you can limit your potential loss by placing a “stop order” on your ETF holding. It means the broker will sell you out if any loss becomes too big to bear. ”- Mauricio Carillo
Why Trade Emerging Markets ETFs?
- Emerging markets show higher per capita GDP growth than developing countries
- Several emerging markets ETFs have higher dividend yields than most US companies
- ETFs offer more layers of risks than domestic and foreign developed stocks
- Emerging markets investment carries the potential to improve the overall long-term returns of your portfolio
- Brings diversity to your investment portfolio because they are less correlated to the US equities
- Offers geographic diversity over thousands of companies across the globe
- Emerging markets ETFs have better liquidity than emerging markets mutual funds
Frequently Asked Questions
According to our research and analysis, the Vanguard FTSE Emerging Markets ETF (VMO) is one of the best emerging markets ETFs.
In terms of risk exposure, diversity, cost, volatility, and the potential return on long-term investments, emerging markets ETFs could be a good investment option.
Open an account with a broker that allows you to invest in emerging markets ETFs. Find the ETF in the broker’s list, specify how much you wish to invest, and click the “buy” button.
The top emerging markets are often referred to by the acronym BRIC: Brazil, Russia, India, and China.
Potentially higher growth, geographic diversification, higher dividend yields, low volatility, and better liquidity.
Some of the things you should check are historical per capita GDP growth, net asset value, dividend yield, P/E ratio, YTD daily total return, and net expense ratio.