Emerging market funds take advantage of the potential growth in emerging market economies, often in places like India, China, and Brazil. On the riskier side of the market due to the susceptibility to both economic and political instability, investors usually consider emerging market ETFs as a ‘high risk, high reward’ strategy. Take a look at the best options available.
The Best Emerging Markets ETFs at a Glance
CODE | Price | Net Assets | Ongoing charge | |
|---|---|---|---|---|
Vanguard FTSE Emerging Markets UCITS ETF | VFEM | £43.00 | £1.99 billion | 0.22% |
iShares Core MSCI Emerging Market IMI ETF | EIMI | £24.06 | £14.02 billion | 0.18% |
Franklin FTSE India UCITS ETF | FLXI | £29.47 | £203.24 million | 0.19% |
Lyxor MSCI Emerging Markets Ex China UCITS ETF | EMXC | £40.87 | £283.03 million | 0.50% |
EMQQ Emerging Markets Internet & Ecommerce ETF | EMQQ | £24.14 | £140.99 million | 0.86% |
iShares MSCI EM UCITS ETF | IEMA | £30.18 | £1.48 billion | 0.18% |
SPDR Bloomberg Emerging Markets Local Bond UCITS ETF | EMDD | £43.80 | £2.07 billion | 0.55% |
*Data as of April 2024.
Vanguard FTSE Emerging Markets UCITS ETF
The Vanguard FTSE Emerging Markets UCITS ETF employs a passive investment approach and seeks to track the performance of the FTSE Emerging Index.
This ETF is composed of large and mid-sized company stocks in emerging markets, with financial services (22.73%), technology (16.93%), consumer cyclical (12.16%), communication services (10.06%) and basic materials (8.72%) representing the top five sectors.
The ETF's top five holdings are Taiwan Semiconductor Manufacturing, Tencent Holdings, Alibaba Group Holding, Reliance Industries, and Meituan.
It invests in over 2,000 stocks, keeping it sufficiently diversified for investors to access investments with the potential for growth in emerging markets. With a cumulative gain of 8.44% in the past three years, the fund has been able to generate returns that mirror its benchmark.
iShares Core MSCI Emerging Market IMI ETF
Created in May 2014, iShares Core MSCI Emerging Market IMI ETF (EIMI) aims to replicate the performance of its benchmark index, the MSCI Emerging Markets Investable Market Index. It’s composed of stocks from various emerging markets countries, with a mix of large, mid, and small-cap companies. The fund's primary goal is to provide its investors with both capital and income returns.
The top five holdings of the fund, in order of their weightings, are Taiwan Semiconductor Manufacturing, Tencent Holdings, Samsung Electronics, Alibaba Group Holding, and Reliance Industries.
Though its top holdings are similar to other funds on our list, this ETF has a cumulative three-year return of 11.31% outperforming its benchmark by 0.12%. With over 3,000 holdings, the fund has a diversified portfolio across different sectors, with technology (20.59%) and financial services (19.84%) taking the lead positions in terms of weightings.
Franklin FTSE India UCITS ETF
The Franklin FTSE India UCITS ETF is an investment fund that primarily focuses on large and mid-sized companies in India. Its objective is to mirror the performance of the FTSE India 30/18 Capped Index as accurately as possible, irrespective of its fluctuation.
The fund primarily focuses on the Indian market with a 99.90% investment, keeping a minor 0.46% in the form of cash or its equivalents as part of its portfolio.
The investment is diverse, spread across various sectors, with the top five being financial services (20.54%), technology (13.03%), energy (12.91%), consumer cyclical (10.72%), and basic materials (10.52%).
The Indian market has significantly benefited from the boom in digital technology, creating an environment of stability and growth. This is reflected in the ETF's performance, as it has gained over 65% cumulatively in the past three years.
Lyxor MSCI Emerging Markets Ex China UCITS ETF
The Lyxor MSCI Emerging Markets Ex China UCITS ETF is designed to closely track the MSCI Emerging Markets excluding China Net Return USD Index. Since the fund excludes China, it might be a good fit for those investors who would like to diversify their portfolio beyond this country, without compromising on the exposure to the Emerging Market Asset Class.
The top five sectors of this ETF are as follows: technology at 28.18%, followed by financial services at 23.82%, basic materials at 10.37%, industrials at 6.48%, and communication services at 6.43%. This provides investors with a diversified portfolio of investments in the largest and most liquid securities from emerging markets.
With a cumulative three-year return of 28.49%, this ETF offers a great opportunity for investors looking to gain exposure to emerging markets.
EMQQ Emerging Markets Internet & Ecommerce ETF
Based in San Francisco, EMQQ Global is a firm specializing in investment management and research in the technology sector of emerging and frontier markets. Their investments span digital service and e-commerce companies that operate in over 50 countries, including India, China, Brazil, Indonesia, Nigeria, Egypt, Mexico, Vietnam, and Turkey.
Its most prominent sectors include consumer cyclical (39.64%) and communication services (39.23%), while its top five holdings are Tencent, Alibaba Group, Reliance Industries, PDD, and MercadoLibre.
The fund's three-year annualized performance is only 0.58%, but there is still some potential considering it has gained over 20% in the last six months.
iShares MSCI EM UCITS ETF
The iShares MSCI EM UCITS ETF, managed by BlackRock Asset Management Ireland Limited, seeks to offer investors a comprehensive return that includes both income returns and capital appreciation. It aims to monitor and mirror the performance of the MSCI Emerging Markets Index, which provides investors with exposure to a number of large and mid-cap stocks from emerging markets.
The five key holdings of the fund are Taiwan Semiconductor Manufacturing, iShares MSCI China A ETF USD Acc. Tencent Holdings, Samsung Electronics, and iShares MSCI Brazil UCITS ETF USDHA.
The fund's portfolio is primarily concentrated in financial services (21.36%), technology (21.13%), consumer cyclical (12.62%), communication services (10.16%), and basic materials (7.92%).
The three-year cumulative return sits at 6.99%, which is less than other funds on our list that track the same index. Nonetheless, it's still an emerging market ETF to keep an eye on as it has gained over 40% cumulatively since its launch in 2009.
SPDR Blomberg Emerging Markets Local Bond UCITS ETF
Established in May 2011, the fund's goal is to mirror the performance of investible bonds in local currency emerging markets. Its investment strategy is to mirror the performance of the Bloomberg Barclays Emerging Markets Local Currency Liquid Government Bond Index as closely as possible. To achieve this, it invests in a portfolio of bonds that have similar characteristics to those included in the Index, such as maturity dates, coupon rates, and countries of issue.
A major advantage of this ETF is that it's highly diversified, with the top five holdings making up less than 10% of the total portfolio. This means that the fund is exposed to less risk than traditional funds that invest in single bonds or countries.
The fund’s three-year performance is -2.25%, but it gained 2.76% in the first 6 months of 2023, suggesting this might be the right time to take a closer look.
What are Emerging Market ETFs?
Simply put, an emerging market ETF is a basket of stocks from developing countries around the world. Think of them as a shortcut to investing in those markets without having to figure out which individual stocks you should buy.
These funds are designed to track the performance of an index, and they're traded on stock exchanges or online investment platforms, just like regular stocks.
Investing in emerging markets can be risky but also has the potential for higher returns than investing domestically. That's why they're often referred to as 'high risk, high reward’ investments.
Pros and Cons of Emerging Market Funds
Now that you know what emerging market ETFs are, let's take a look at the pros and cons.
- Emerging markets have the potential to generate higher returns than developed markets due to the high volatility and spontaneous growth they have.
- By investing in several countries, investors can spread their risk across different geographies and industries, which can help protect against local or sector-specific economic downturns.
- Emerging markets tend not to be highly correlated with traditional asset classes such as stocks and bonds, thus providing an extra layer of diversification for portfolios that are already well-diversified domestically.
- Overall, these ETFs have relatively low management fees compared to other types of funds and can be bought and sold quickly on exchanges, making them more cost-effective.
- Higher risk level than developed markets due to lower levels of transparency, liquidity, and market efficiency in many emerging countries.
- Currency risks associated with exchange rate fluctuations between local and foreign currencies could result in losses for investors if an asset is held for a long period of time before being exchanged back into the original currency.
- Political risks associated with countries that have more volatile or unpredictable governments could lead to sudden losses if a country's economy changes drastically.
- Lack of liquidity in some markets can result in difficulty entering and exiting positions, which could mean higher trading costs for investors.
Deciding how much money to invest in emerging markets ETFs is an individual decision that should take into account your own risk tolerance and financial goals. Generally speaking, it's advisable to start small when it comes to investing in risky investments like these and then build up as their confidence grows.
For example, you could start with 5%-10% of your total investment and then increase this percentage as you become more familiar with the asset class. You can start with as little as £100 as some ETFs are quite affordable. However, you may be better off with a substantial initial investment to make sure you cover the trading costs and make significant gains from your investment.
All in all, it’s always best to only invest what you can afford.
How to Choose the Best Emerging Market ETFs
Thanks to the volatility of the asset class, choosing the right emerging market ETFs can be a tricky task. To make sure you're investing in funds that are well-suited to your risk tolerance and financial goals, you'll need to do some research first. Here are a few tips on how to choose the best emerging market ETFs.
Dive into the fund's track record
Check out the following parameters and how they compare to similar funds.
The assets under management (AUM) of a fund is the total amount it holds. This will give you an idea of how much money is being invested in the fund and whether or not it has enough capital to operate effectively.
Investment strategies. Are they focusing on growth stocks? Value stocks? Or are they following a passive index-tracking strategy? The strategy is often determined by the fund manager but can also be influenced by the fund's investors and board of directors.
The number of holdings a fund has is an indication of how diversified it is. A larger number of holdings means that the fund is investing in more different companies or sectors, which can help reduce risk as well as maximize potential returns.
Number of shares outstanding. Generally, funds with more shares outstanding tend to be more liquid and easier to buy and sell. They may also offer tighter bid-ask spreads which makes for a smoother trading experience.
Define your goals and risk tolerance
How much money are you willing to invest in emerging markets? Are you looking for short-term or long-term gains? How much risk are you comfortable taking on?
If you're looking to invest in specific sectors, consider sector-specific ETFs, as these can provide more targeted exposure to a particular industry. Additionally, pay attention to the fund's turnover rate and its historical performance, such as how often it has beaten its benchmark index.
Consider the ETF's underlying holdings
What type of companies are included in the portfolio? Are those companies well-positioned in the market, or do they have high amounts of debt? These questions can help you gauge how risky the fund is and whether or not it's a good choice for you.
Some funds hold thousands of securities, so you may want to pay more attention to the composition of the top ten holdings to get a better idea of the fund's strategy.
Research trading costs
Varying between different brokers, common trading costs are management fees, annual charges, and spreads/commissions. These can really add up over time, so make sure to factor them into your decision.
How to Invest in Emerging Market ETFs in the UK
If you're ready to take the plunge, here’s a five-step guide to help you invest in an emerging market ETF in the UK.
Research and choose which fund to invest in
Look at the performance of different funds over time and read up on any news or announcements associated with them. Make sure you choose a fund that is suited to your investment goals, risk appetite, and financial capacity.
Choose a trading platform
Whether you're using an online broker or a traditional stockbroker, make sure they are FCA-regulated and have a good track record. Compare the trading fees, other costs associated with your chosen fund, and any services they might provide – such as advice or analysis tools.
Decide how much risk to take on
It's important to consider how volatile the markets are and how much money you're willing to lose if things don't go according to plan. If you're new to investing in emerging markets ETFs, it's best to start small and increase your investment over time as you gain more experience.
Calculate the cost of your ETFs
Factor costs like initial charges and any ongoing costs such as management fees and taxes into your overall investment plan so that you know how much money you'll need to set aside upfront and in the long run.
Execute and manage your investments
Depending on the trading platform you've chosen, this may involve placing orders or setting up automated trading systems. It's important to keep track of your portfolio and monitor your investments regularly. This will help you stay informed about any changes in the market and enable you to make timely decisions when needed.
The Best Platforms to Invest in Emerging Market ETFs
Commission per trade | Account Types | ISA Fee | Number of ETFs | |
|---|---|---|---|---|
Freetrade | £0 | Stocks and shares ISA, SIPP, GIA | £5.99 per month | 400+ |
Interactive Investor | £5.99 | Stocks and shares ISA, SIPP, GIA | £4.99 per month | 1,000+ |
Hargreaves Lansdown | £11.95 | Stocks & Shares ISA, SIPP, Junior ISA, Fund & Share Account, Cash ISA, Lifetime ISA | 0.45% per year | 1,000+ |
Freetrade
Freetrade is an attractive option for investors searching for a low-cost trading platform that offers shares and exchange-traded funds (ETFs). It does not require any commission or platform fees for users of the Basic plan. However, the Standard and Plus plans both have a flat monthly fee of £4.99 and £9.99, respectively, which may be more attractive for those with larger portfolios.
In terms of investment options, Freetrade provides over 1,500 stocks and ETFs with its Basic plan, while users of the Standard and Plus plans can access up to 6,000 investment options.
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 7.6 | Visitfreetrade.io | The value of your investments can go down as well as up and you may get back less than you invest. |
Interactive Investor
Interactive Investor is a leading investment platform that provides access to an extensive selection of over 40,000 investment products, including shares, funds, investment trusts and exchange-traded funds (ETFs).
To help customers choose the best plan for their needs, Interactive Investor offers three main plans:
Investor Essentials (£4.99 per month) is designed for portfolios of up to £30,000 and includes both a trading account and an ISA.
Investor (£9.99 per month) offers all the features of Investor Essentials and Junior ISAs.
Super Investor (£19.99 per month) provides everything in the Investor plan but with a lower fee for some trades.
Hargreaves Lansdown
Hargreaves Lansdown (HL) is one of the largest trading platforms in the UK, boasting a customer base of 1.7 million investors. The platform offers a comprehensive range of services, such as research tools, investment advice and a wide selection of funds, including emerging market ETFs.
Hargreaves Lansdown's Stocks & Shares ISA is an attractive platform due to its extensive range of investments, which covers over 3,000 funds and 1,000 stocks/investment trusts. The Wealth Shortlist feature provides assistance on which funds to invest in based on research gathered by economists and analysts. This is a useful feature for beginners who may feel overwhelmed by the sheer number of options.
Despite its high fee of 0.45%, HL is still a good option for those who prefer the convenience of a premium service.
