Best Emerging Market ETFs
Emerging market ETFs give you access to China, India, Brazil, and 20+ developing economies. Here is what to know before buying.
Don't have time? Here's what you need to know:
- 1VWO is the best emerging market ETF: 0.08%, 5,000+ stocks, broadest coverage
- 2Emerging markets are volatile with long cycles — 300%+ gains (2000-2007) and flat periods (2010-2023)
- 3VXUS already gives you ~25% EM exposure; a dedicated fund overweights it intentionally
- 4China is 25-30% of most EM ETFs — understand this concentration before buying
Emerging Markets: High Growth, High Volatility
Emerging markets include China, India, Brazil, Taiwan, South Korea, Mexico, and about 20 other developing economies. These countries have faster GDP growth than developed nations but less stable financial systems, weaker governance, and more political risk. Emerging market stocks represent about 12% of global market cap.
From 2000 to 2007, emerging market stocks returned over 300%, crushing U.S. stocks. From 2010 to 2023, they returned roughly 30% total while the S&P 500 returned over 200%. Emerging markets go through long boom and bust cycles — holding them requires patience and a decades-long time horizon.
Best Emerging Market ETFs Compared
VWO is the clear winner: lowest cost (0.08%), broadest coverage (5,000+ stocks), and the most assets. EEM tracks a similar index but charges 8.5x more (0.68%) — there is no reason to use EEM for long-term investing. IEMG is a fine iShares alternative at 0.09%.
| ETF | Index | Expense Ratio | Holdings | China Weight | 5-Year Return |
|---|---|---|---|---|---|
| VWO | FTSE Emerging Markets | 0.08% | 5,000+ | ~30% | ~2% |
| IEMG | MSCI Emerging Markets | 0.09% | 2,600+ | ~25% | ~2% |
| EEM | MSCI Emerging Markets | 0.68% | 1,200+ | ~25% | ~1% |
| SCHE | FTSE Emerging Markets (Schwab) | 0.11% | 1,700+ | ~30% | ~2% |
| XSOE | EM ex-State-Owned Enterprises | 0.32% | 500+ | ~25% | ~3% |
How Emerging Markets Fit in Your Portfolio
If you hold VXUS (total international), about 25% of that fund is already in emerging markets — roughly 6-8% of a typical portfolio. A separate emerging market ETF overweights this exposure. This makes sense if you believe developing economies will outperform over the next 10-20 years.
A common allocation: 5-10% of your total portfolio in emerging markets (either through VXUS or a dedicated fund like VWO). Going above 15% creates significant concentration in volatile, less-regulated markets. China alone represents 25-30% of most emerging market ETFs — a substantial single-country bet.
Tip: If you are concerned about China concentration, XSOE (WisdomTree EM ex-State-Owned) excludes government-controlled companies, reducing China risk. For even less China exposure, consider combining VWO with a dedicated India ETF (INDA).
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Frequently Asked Questions
Is VWO or IEMG better?
Very similar. VWO tracks the FTSE index and includes South Korea as a developed market (so less South Korea exposure). IEMG tracks the MSCI index and includes South Korea as an emerging market. Performance difference is negligible. VWO is slightly cheaper.
Why have emerging markets underperformed for so long?
Three factors: China's regulatory crackdowns and property crisis, a strong U.S. dollar (hurts EM currencies), and tech concentration in U.S. markets. These headwinds may reverse — many analysts expect EM to outperform over the next decade as valuations are historically cheap.
Should I add a dedicated India ETF?
India is growing fast (6-7% GDP growth) and has favorable demographics. INDA (iShares India) provides direct exposure. But India is already ~18% of VWO. Adding INDA on top overweights India. Keep the total EM allocation under 10-15% of your portfolio regardless of country-specific enthusiasm.
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Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.