The US equity market has delivered impressive returns over the last decade. The S&P 500 index has shot up 188% since 2010. It’s by far the longest bull run in history. The US equity markets have even outperformed international equities. Just for comparison, the MSCI World ex-US Index has gained only 50% since 2010. Several analysts and financial market strategists believe it’s time to allocate a larger portion of your portfolio to international equities, especially emerging markets. The simplest way to gain exposure to emerging markets is through emerging market exchange-traded funds (ETFs). Here we take a look at the top 10 largest emerging market ETFs in the world.
Global economic indicators suggest the slowdown may have bottomed out. The US-China trade tensions have also started showing signs of easing. Morgan Stanley economist Chetan Ahya recently told clients that the “improvement in manufacturing and trade can be sustained.”
ValueWalk's Raul Panganiban interviews William Burckart, The Investment Integration Project’s President and COO, and discuss his recent book that he co-authored, “21st Century Investing: Redirecting Financial Strategies to Drive System Change”. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors.
Emerging market ETFs invest in companies or assets based in emerging countries such as China, India, Russia, and others. Depending on the underlying index they are tracking, ETFs could hold assets in stocks, bonds, or commodities.
Before you invest in an ETF, it's important to look at its assets under management (AUM), trading volume, and expense ratio. The higher AUMs enable ETFs to track their indices more closely. If the trading volumes are high, the ETF will have a tighter spread.
These are the largest emerging market ETFs based on their assets under management (AUM). The ranking is based on the latest data from ETFdb.
10- Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE), $2.8 billion
FNDE has delivered cumulative returns of 35.69% in the last five years and 18.45% in three years. Its expense ratio is 0.39%. The ETF tracks the Russell RAFI Emerging Markets Large Company Index, which measures performance of companies in China, Taiwan, Russia, Brazil, India, and other emerging markets. Its largest holdings are Gazprom, TSMC, Lukoil, and China Construction Bank.
9- Invesco Emerging Markets Sovereign Debt ETF (PCY), $3.6 billion
PCY is a fixed-income fund that tracks the DBIQ Emerging Market USD Liquid Balanced Index. It invests in dollar-denominated government bonds of more than a dozen emerging countries. The ETF has returned a cumulative 35.72% in five years and 19.25% in three years. Its total expense ratio is 0.50%.
8- SPDR Portfolio Emerging Markets ETF (SPEM), $3.8 billion
This emerging market ETF from State Street Global Advisors has $3.8 billion in assets. Its expense ratio is relatively lower at just 0.11%. SPEM tracks the performance of S&P Emerging BMI Index. Its largest holdings are Alibaba, Tencent, TSMC, China Construction Bank, and Naspers. SPEM has delivered cumulative returns of 27.2% in five years and 25.6% in three years.
7- VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC), $4.3 billion
EMLC is a bond fund that tracks the J.P. Morgan GBI-EM Global Core Index. The index consists of government bonds issued by emerging countries in their local currencies. Its expense ratio is capped at 0.41%. The fund has gained a total of just 8.58% in five years (1.17% CAGR) and 10.88% in three years.
6- iShares Edge MSCI Min Vol Emerging Markets ETF (EEMV), $5.3 billion
EEMV tracks the MSCI Emerging Markets Minimum Volatility Index and has an expense ratio of 0.25%. It invests in emerging market stocks with low volatility. The ETF has delivered 3.2% annualized return in five years and 8.70% CAGR over the last three years. China, Taiwan, and India account for more than 50% of its portfolio.
5- Schwab Emerging Markets Equity ETF (SCHE), $6.6 billion
SCHE is a diversified emerging market ETF with $6.6 billion in assets. Its top holdings are Alibaba, Tencent, TSMC, China Construction Bank, and Naspers. The ETF tracks the FTSE Emerging Index, which measures performance of more than 1,341 large-cap and mid-cap stocks in more than 20 emerging markets. SCHE has an expense ratio of 0.13%.
4- iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB), $15.9 billion
BlackRock's EMB tracks the J.P. Morgan EMBI Global Core Index. The index is composed of the US dollar-denominated emerging market government bonds. It gives you access to the government bonds of more than 30 countries. EMB has an expense ratio of 0.39%. It has delivered an annualized return of 6.23% over three years, 5.67% over five years, and 6.23% over the last ten years.
3- iShares MSCI Emerging Markets ETF (EEM), $28.9 billion
EEM invests in more than 800 large-cap and mid-cap stocks in emerging countries. It tracks the MSCI Emerging Markets Index. Its expense ratio is on the higher side at 0.68%. The ETF has offered an annual return of 10.92% over three years and 4.99% over the last five years. Its largest holdings are Alibaba, Tencent, TSMC, and Samsung.
2- iShares Core MSCI Emerging Markets ETF (IEMG), $60.6 billion
IEMG with $60.6 billion in assets is the second largest emerging market ETF in the world. Its expense ratio is just 0.14%. It tracks the MSCI Emerging Markets Investable Market Index. The index is composed of large-cap, mid-cap, and small-cap emerging market equities. The ETF has delivered an annualized return of 11.09% over the last three years and 5.37% over five years.
1- Vanguard FTSE Emerging Markets ETF (VWO), $65.3 billion
Vanguard's VWO is the largest emerging market ETF in the world with $65.3 billion in assets. It tracks the FTSE Emerging Markets All Cap China A Inclusion Index. The index measures equity markets performance of more than 20 emerging countries including China, Russia, and India. Its expense ratio is just 0.12%.