Wed. Apr 10th, 2024

Best Emerging Markets ETFs 2024: for Global Investors

Emerging Markets ETFsEmerging Markets ETFs
Emerging Markets ETFs

‍Introduction to emerging markets ETFs

As a global investor, it is crucial to explore the vast potential of emerging markets. These economies, which are experiencing rapid growth and development, offer unique investment opportunities. One of the most effective ways to gain exposure to these markets is through emerging markets exchange-traded funds (ETFs). In this article, I will provide an in-depth analysis of the best emerging markets ETFs, enabling you to make informed investment decisions.

What are the benefits of investing in emerging markets ETFs?

Emerging Markets ETFs

Investing in emerging markets ETFs can offer numerous benefits. Firstly, these ETFs provide diversification across different emerging markets, reducing the risk associated with investing in a single country. This diversification allows investors to tap into the growth potential of multiple economies, mitigating the impact of any individual market downturn.

Secondly, emerging markets ETFs provide access to sectors and industries that may not be readily available in developed markets. These sectors, such as technology, healthcare, and consumer goods, are often driving the growth in emerging economies. By investing in ETFs focused on these sectors, investors can capitalize on the rising middle class and increasing consumer spending in these markets.

Lastly, emerging markets ETFs offer liquidity and transparency. Unlike traditional mutual funds, ETFs trade on stock exchanges, allowing investors to buy and sell shares throughout the day at market prices. Additionally, ETFs provide detailed information on their holdings, expense ratios, and performance, enabling investors to make informed decisions.

Understanding the different types of emerging markets ETFs

emerging markets ETFs

There are several types of emerging markets ETFs, each with its own investment strategy. The two main categories are equity ETFs and bond ETFs.

Equity ETFs invest in stocks of companies located in emerging markets. These ETFs can be broad-based, providing exposure to a wide range of companies across various sectors and countries. Alternatively, they can be sector-specific, focusing on a particular industry or theme within emerging markets.

Bond ETFs, on the other hand, invest in debt securities issued by governments or corporations in emerging markets. These ETFs provide fixed income investors with the opportunity to benefit from the higher yields offered by emerging market bonds. They also offer diversification and the potential for capital appreciation as these economies continue to grow.

Factors to consider when choosing the best emerging markets ETF

emerging markets ETFs

When selecting the best emerging markets ETF for your investment strategy, it is important to consider several factors.

Firstly, assess the ETF’s expense ratio, which represents the annual cost of owning the fund. Lower expense ratios can significantly impact your long-term returns, so it is advisable to choose ETFs with competitive fees.

Secondly, evaluate the ETF’s performance history. Look for consistent returns over multiple time periods and compare the fund’s performance to its benchmark index. Historical performance can provide insights into the fund manager’s ability to navigate the complexities of emerging markets.

Furthermore, consider the fund’s assets under management (AUM) and trading volume. Higher AUM and trading volume indicate greater investor interest and liquidity, making it easier to buy and sell shares without significant price fluctuations.

Lastly, review the fund’s holdings and diversification. A well-diversified ETF should provide exposure to multiple countries and sectors within emerging markets. This diversification helps to mitigate risk and capture the potential growth across various economies.

Top-performing emerging markets ETFs

emerging markets ETFs

Now let’s explore some of the top-performing emerging markets ETFs:

  1. iShares MSCI Emerging Markets ETF (EEM): This ETF is one of the largest and most popular in the emerging markets space. It provides broad exposure to companies in emerging market countries and has a low expense ratio.
  2. Vanguard FTSE Emerging Markets ETF (VWO): This ETF tracks the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. It offers a diversified portfolio of stocks across emerging market countries, with a focus on China.
  3. Schwab Emerging Markets Equity ETF (SCHE): With a low expense ratio, this ETF aims to provide exposure to the broad emerging markets equity universe. It offers a diversified portfolio of stocks across various sectors and countries.

These ETFs have consistently delivered strong performance and offer investors exposure to a wide range of emerging market economies.

Exploring the best emerging markets ex China ETFs

emerging markets ETFs

While China is a significant player in the emerging markets landscape, some investors may prefer to exclude it from their investment strategy. For those looking for exposure to emerging markets ex China, there are specific ETFs available.

One notable example is the iShares MSCI Emerging Markets ex China ETF (EMXC). This ETF provides investors with exposure to emerging market countries outside of China, offering a diversified portfolio of stocks across various sectors. It is an excellent option for those seeking to tap into the growth potential of emerging markets while excluding Chinese stocks from their investment portfolio.

Best emerging markets bond ETFs for fixed income investors

emerging markets ETFs

Fixed income investors looking to invest in emerging market bonds have several ETF options to consider. Here are a few of the best emerging markets bond ETFs:

  1. iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB): This ETF tracks the performance of U.S. dollar-denominated emerging market bonds. It offers exposure to a diversified portfolio of government and corporate bonds issued by emerging market countries.
  2. VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC): This ETF focuses on local currency-denominated bonds issued by emerging market governments and corporations. It offers investors exposure to the potential currency appreciation of these markets.

These bond ETFs provide fixed income investors with the opportunity to earn attractive yields while diversifying their fixed income portfolios beyond developed markets.

Best emerging markets ETFs in Canada

emerging markets ETFs

Canadian investors seeking exposure to emerging markets can consider the following ETFs:

  1. iShares Core MSCI Emerging Markets IMI Index ETF (XEC.TO): This ETF provides broad exposure to emerging market equities, including both large and small-cap stocks. It aims to replicate the performance of the MSCI Emerging Markets Investable Market Index.
  2. BMO Emerging Markets Equity Index ETF (ZEM.TO): This ETF seeks to replicate the performance of the Dow Jones Emerging Markets Index. It offers exposure to a diversified portfolio of emerging market equities.

These ETFs allow Canadian investors to participate in the growth potential of emerging markets while benefiting from the ease and convenience of investing through ETFs.

Morningstar’s top-rated emerging markets equity ETFs

emerging markets ETFs

Morningstar, a leading investment research firm, provides ratings for various ETFs. Here are some of the top-rated emerging markets equity ETFs according to Morningstar:

  1. iShares Core MSCI Emerging Markets ETF (IEMG): This ETF seeks to track the investment results of an index composed of large, mid, and small-cap emerging market equities. It has received a five-star rating from Morningstar.
  2. Xtrackers MSCI Emerging Markets Hedged Equity ETF (DBEM): This ETF provides exposure to emerging market equities while hedging against currency fluctuations. It has also received a five-star rating from Morningstar.

Morningstar’s ratings can serve as a valuable tool for investors in their search for the best emerging markets ETFs.

The impact of MSCI inclusion on emerging markets ETFs

emerging markets ETFs

The inclusion of emerging market stocks in the MSCI indexes can have a significant impact on ETF performance. When a country is added to an index, it attracts increased investor attention and capital inflows, driving up stock prices. This inclusion can lead to improved liquidity and trading volumes, benefiting investors in emerging markets ETFs.

For example, when China’s A-shares were added to the MSCI Emerging Markets Index in 2018, it resulted in a surge of foreign investment in Chinese stocks. This move expanded the investment universe for emerging markets ETFs and provided investors with greater exposure to the Chinese market.

Investors should closely monitor MSCI inclusion announcements as they can present attractive investment opportunities in emerging markets ETFs.

Diversified emerging markets ETFs: A balanced approach

emerging markets ETFs

For investors seeking a balanced approach to investing in emerging markets, diversified ETFs can be an excellent choice. These ETFs aim to provide exposure to a broad range of emerging market countries and sectors, reducing concentration risk.

One such example is the iShares MSCI Emerging Markets Multifactor ETF (EMGF). This ETF utilizes a multifactor approach, considering factors such as value, quality, momentum, and size, to select stocks from the MSCI Emerging Markets Index. It offers investors a diversified portfolio of stocks with a focus on factors that have historically driven outperformance.

By investing in diversified emerging markets ETFs, investors can potentially capture the upside of emerging market growth while minimizing the risks associated with individual countries or sectors.

Conclusion: Choosing the best emerging markets ETF for your investment strategy

emerging markets ETFs

As a global investor, exploring the potential of emerging markets is essential for long-term growth. Investing in emerging markets ETFs provides a convenient and diversified way to gain exposure to these dynamic economies.

When choosing the best emerging markets ETF, consider factors such as expense ratio, performance history, assets under management, and diversification. Additionally, evaluate specific ETFs that cater to your investment preferences, such as excluding China or focusing on bond investments.

By carefully selecting the best emerging markets ETFs, you can unlock the potential of these markets and enhance your investment strategy. Take advantage of the opportunities presented by emerging markets and start building a well-diversified portfolio today.

Click here to explore the best emerging markets ETFs for your investment strategy.

Note: The information provided in this article is for informational purposes only and should not be considered as financial advice. Please consult with a professional financial advisor before making any investment decisions.

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