As the world continues evolving, emerging markets shine brightly on the economic stage. Countries like China, India, Brazil, and Mexico are undergoing rapid industrialization and urbanization, which means more consumer spending and investment opportunities. For those looking to diversify and capitalize on this growth, emerging market ETFs could be a smart choice.
Why should you consider investing in emerging market ETFs? These funds offer exposure to a wide range of economies and industries, capturing the dynamic and fast-paced growth that these markets are experiencing.
Below, I have highlighted three fundamentally sound emerging markets ETFs: the iShares MSCI Emerging Markets ETF (EEM), the Vanguard Emerging Markets Stock Index Fund (VWO), and the iShares Core MSCI Emerging Markets ETF (IEMG). These funds have a high potential for returns and solid growth this year and have earned a ‘Strong Buy’ rating in our proprietary rating system.
The International Monetary Fund (IMF) forecasts that the global economy will grow by 3.2% in both 2024 and 2025. While advanced economies are set to grow at a modest 1.7% to 1.8%, emerging markets and developing economies are projected to surge ahead with a 4.2% growth rate.
What's driving this growth? Large emerging markets are becoming powerhouses of economic expansion, fueled by demographic shifts and an expanding consumer base. For instance, Guyana is predicted to lead the pack with a CAGR of 19.8% from 2024 to 2029.
Mozambique, Rwanda, and Bangladesh follow closely, boasting CAGRs of 7.9%, 7.2%, and 6.8%, respectively. Meanwhile, emerging economies like China, India, Brazil, Indonesia, and Mexico are expected to grow faster than the leading advanced economies over the next decade.
In this thriving landscape, investing in emerging market ETFs can be a strategic move to capture robust growth and diversify your portfolio. With that in mind, let’s look at the fundamentals of the top three Emerging Markets Equities ETFs, beginning with number 3.
ETF #3: iShares MSCI Emerging Markets ETF (EEM)
EEM is a fund launched by BlackRock, Inc. and managed by BlackRock Fund Advisors. It invests in public equity markets of global emerging regions and stocks of companies operating across diversified sectors. The fund seeks to track the performance of the MSCI Emerging Markets Index using a representative sampling technique.
The fund has assets under management (AUM) of $19.08 billion. EEM’s top holdings include Taiwan Semiconductor Manufacturing Co., Ltd. (TSM), which has a 9.57% weighting. Tencent Holdings Ltd. (TCEHY) is next at 4.16%, followed by Samsung Electronics Co., Ltd. and Alibaba Group Holding Limited (BABA) at 3.72% and 1.86%, respectively.
The ETF has a total of 1212 holdings, with its top 10 assets comprising 26.12% of its AUM. EEM’s expense ratio is 0.70%, higher than the category average of 0.50%. Over the past three months, its fund inflows were $215.98 million.
The fund pays an annual dividend of $1.04, translating to a 2.39% yield at the prevailing price level. Its dividend payouts have grown at a 10.9% CAGR over the past three years. The fund’s four-year average yield is 2.22%.
Over the past nine months, EEM has gained 16.6% to close the last trading session at $43.45. It has also gained 9.9% over the past six months. The fund’s NAV was $43.37 as of Jul 03, 2024.
EEM’s POWR Ratings reflect this promising outlook. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EEM has an A grade for Trade and Buy & Hold. Among the 101 ETFs in the A-rated Emerging Markets Equities ETFs group, it is ranked #3. Click here to see EEM’s Peer rating.
ETF #2: Vanguard Emerging Markets Stock Index Fund (VWO)
VWO is an exchange-traded fund launched and managed by The Vanguard Group, Inc. It invests in companies' stocks located in emerging markets worldwide, such as China, Brazil, Taiwan, and South Africa. The fund tracks the performance of the FTSE Emerging Markets All Cap China A Inclusion Index by using a representative sampling technique.
With $79.15 billion in AUM, VWO’s top holdings are TSM, with a 7.55% weighting, TCEHY, at 3.56%, and Vanguard Cash Management Market Liquidity Fund and BABA, at 2.21% and 2.06%, respectively. The ETF has 4762 holdings, with its top 10 assets comprising 21.73% of its AUM.
The fund's expense ratio is 0.08%, lower than the category average of 0.50%. VWO fund inflows were $1.3 million over the past five days and $233.32 million over the past year.
VWO pays an annual dividend of $1.40, which translates to a 3.14% yield at the current price level. Moreover, the fund’s dividend payouts have increased at CAGRs of 9.2% and 5.1% over the past three and five years, respectively.
VWO has gained 15.8% over the past nine months and 8.7% over the past year to close the last trading session at $44.67. It has a beta of 0.87. The fund’s NAV was $44.61 as of July 3, 2024.
VWO’s POWR Ratings reflect solid prospects. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
VWO has an A grade for Trade and Buy & Hold. Of the 101 ETFs in the Emerging Markets Equities ETFs group, it is ranked #2.
Beyond what we stated above, we have also given VWO a grade for Peer. Get all VWO ratings here.
ETF #1: iShares Core MSCI Emerging Markets ETF (IEMG)
IEMG offers outstanding coverage of emerging markets and was launched by BlackRock. It provides comprehensive exposure by including smaller firms in the portfolio. IEMG tracks a market-cap-weighted index of emerging-market firms, covering 99% of market capitalization.
With $79.46 billion in AUM, its top holdings are TSM, with an 8.12% weighting, followed by TCEHY, with a 3.53% weighting, and Samsung Electronics Co., Ltd. and BABA, with 3.16% and 1.57%, respectively. IEMG has a total of 2892 holdings, with the top 10 assets comprising 22.17% of its AUM.
The fund's expense ratio is 0.09%, lower than the category average of 0.50%. IEMG fund inflows were $1.57 billion over the past year. It also has a beta of 0.97.
The fund pays an annual dividend of $1.49, which translates to a 2.73% yield at the current price level. Its dividend payouts have grown at a 7.6% CAGR over the past three years, and its four-year average yield is 2.75%.
IEMG has gained 16.6% over the past nine months and 7.8% year-to-date to close the last trading session at $54.53. The fund has a NAV of $54.44 as of Jul 03, 2024.
IEMG’s solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade, Buy & Hold, and a B for Peer. IEMG has topped the list of 101 ETFs in the same A-rated group. To access all the POWR Ratings for IEMG, click here.
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VWO shares were trading at $44.67 per share on Thursday morning, up $0.65 (+1.48%). Year-to-date, VWO has gained 9.20%, versus a 16.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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