Before moving to what emerging market ETF is, let’s quickly learn what emerging markets are, their characteristics, and why they should be acknowledged whilst making a portfolio.
Emerging markets are countries that are increasing their manufacturing capabilities. They are moving away from agriculture and raw material exports, which were once their main sources of income.
Governments in emerging countries want to improve the lives of their citizens. They are fast industrializing and transitioning to a mixed economy or free market. Brazil, China, India, Russia, etc., are some examples of emerging economies.
Characteristics of emerging economies
What does this mean?
There are numerous ways to profit from emerging markets’ high growth rates and prospects. The best option is to invest in a fund that focuses on emerging markets.
Many funds either track the MSCI Index or strive to outperform it. This helps save a load of effort. It is unnecessary to conduct extensive research into foreign firms and economic policies.
It also lowers risk by distributing investments across various emerging markets rather than just one.
However, emerging markets are not all equal in terms of investment potential. Since the global financial crisis of 2008, some countries have used rising commodity prices to boost their economies.
They did not put money into infrastructure. Instead, surplus funds are used to fund subsidies and new government employees.
As a result, their economies grew swiftly, their citizens bought a lot of imported goods, and inflation became a problem immediately.
Brazil, Hungary, Malaysia, Russia, South Africa, Turkey, and Vietnam. Governments can encourage foreign direct investment by keeping interest rates low.
It was well worth it, even if it did assist in raising inflation. The countries received tremendous economic growth in exchange.
Emerging market funds are mutual funds or exchange-traded funds that invest in publicly traded companies based in an emerging country or region.
Funds might target specific geographic areas or invest in a single country. While an emerging market fund does not have to invest solely in developing markets, it should have most of its holdings in that sector.
The remaining holdings could be more extensive domestic holdings that make capital investments in the economy’s development. As Hyundai has made significant investments in plants in India, an emerging market fund investing in India may also hold Hyundai stocks.
Emerging Markets ETFs have $330.14 billion in assets under management, with 233 ETFs trading on US exchanges. The cost-to-income ratio is 0.58 percent on average.
With $79.22 billion in assets, the Vanguard FTSE Emerging Markets ETF VWO is the largest Emerging Markets ETF. MEXX, the best-performing Emerging Markets ETF in the previous year, returned 80.89 percent.
The VanEck Digital India ETF DGIN was the most recent ETF to launch on February 15, 2022.
Top emerging market ETF issuers by AUM.
| Issuer | AUM in $ billion | Number of funds |
| Blackrock Financial Management | 112.40 | 14 |
| State Street | 7.12 | 4 |
| Invesco | 1.66 | 5 |
| Charles Schwab | 13.89 | 2 |
| First Trust | 0.64 | 5 |
Top and Bottom performers in the category of ETFs
Top ETF Performers according to etf.com
| Ticker | Fund Name | Trailing 30-day price TR change |
| YANG | Direxion Daily FTSE China Bear 3X Shares | 28.44% |
| FXP | ProShares UltraShort FTSE China 50 | 18.58% |
| EDZ | Direxion Daily MSCI Emerging Markets Bear 3x Shares | 17.37% |
| CHIE | Global X MSCI China Energy ETF | 15.04% |
| BRZU | Direxion Daily MSCI Brazil Bull 2X Shares | 13.19% |
Bottom ETF Performers according to etf.com
| Ticker | Fund Name | Trailing 30-day price TR change |
| RUSL | Direxion Daily Russia Bull 2X Shares | -85.12% |
| RSX | VanEck Russia ETF | -70.31% |
| FLRU | Franklin FTSE Russia ETF | -59.40% |
| RSXJ | VanEck Russia Small-Cap ETF | -44.38% |
| YINN | Direxion Daily FTSE China Bull 3X Shares | -24.81% |
Emerging markets offer investors a great way to diversify their portfolios without sacrificing growth.
While the investments are more volatile, the underlying firm frequently enjoys significant growth as the new market grows. Before investing in emerging economies, investors should do their homework.
FAQs
What are emerging market ETFs?
Emerging market ETFs are mutual funds or exchange-traded funds that invest in publicly traded companies based in emerging countries or regions.
These funds typically target specific geographic areas or invest in a single country, with most of their holdings in developing markets.
Why should investors consider investing in emerging market ETFs?
Investing in emerging market ETFs offers the opportunity to diversify portfolios and participate in the high growth rates of emerging economies.
These ETFs distribute investments across various emerging markets, reducing the risk associated with investing in a single country.
How do emerging market ETFs differ from other funds?
Emerging market ETFs focus on investing in companies based in emerging economies, whereas other funds may have a broader scope. These ETFs allow investors to gain exposure to the growth potential of specific regions or countries within the emerging market sector.
What are some top-performing and bottom-performing emerging market ETFs?
According to etf.com, some top-performing emerging market ETFs include YANG, FXP, EDZ, CHIE, and BRZU, with notable price increases over a trailing 30-day period.
Conversely, some bottom-performing ETFs in this category include RUSL, RSX, FLRU, RSXJ, and YINN, with notable price decreases over the same period.
Note: The specific performance of ETFs may vary, and investors should conduct thorough research before making investment decisions in emerging market ETFs.
