VWO vs IEMG: Emerging Market Showdown
Two of the cheapest emerging-market ETFs split on one big question: is South Korea developed or emerging? FTSE and MSCI disagree, and that shapes what you actually own.
Don't have time? Here's what you need to know:
- 1VWO follows FTSE and excludes South Korea; IEMG follows MSCI and includes it, often roughly a tenth of the fund.
- 2Both hold China A-shares, Taiwan, and India heavily and span thousands of stocks including small-caps.
- 3VWO is marginally cheaper (~0.07-0.08% vs ~0.09%), but classification matters far more than the fee gap.
- 4Match your emerging fund's index provider to your developed-international fund to avoid double-counting or missing Korea.
The Real Difference: FTSE vs MSCI
VWO (Vanguard) and IEMG (iShares) both give you broad, low-cost exposure to emerging-market stocks, and at a glance they look interchangeable. The substantive difference comes from the index provider each follows. VWO tracks a FTSE emerging-markets index; IEMG tracks the MSCI Emerging Markets Investable Market Index. Those two providers classify countries differently, and that classification drives what ends up in your fund.
The headline disagreement is South Korea. FTSE classifies South Korea as a developed market, so VWO excludes Samsung and the rest of the Korean market entirely. MSCI still classifies South Korea as emerging, so IEMG includes it — a meaningful slice, often around a tenth of the fund. If you own VWO, you may already get Korea through a developed-markets fund; if you own IEMG, Korea sits inside your emerging bucket.
Breadth: Large-Caps vs the Whole Market
IEMG follows an "Investable Market" index, which deliberately reaches down into small-cap stocks, so it holds a very large number of names — typically a few thousand. VWO's index is broad too and also includes China A-shares and small-caps, but the two funds differ at the edges in exactly which smaller companies they capture and how deep they go.
Both funds carry heavy weights in China, Taiwan, and India, with Taiwan Semiconductor and Tencent-style megacaps near the top. The country and sector tilts you get are far more important to your returns than the handful of basis points separating the two expense ratios. Emerging markets are also where a broad, diversified fund earns its keep, since single-country and single-stock risk runs high — that diversification is a core reason to use a fund at all.
| VWO | IEMG | |
|---|---|---|
| Issuer | Vanguard | iShares (BlackRock) |
| Index provider | FTSE | MSCI |
| Expense ratio | ~0.07-0.08% | ~0.09% |
| South Korea | Excluded (FTSE: developed) | Included (MSCI: emerging) |
| China A-shares | Included | Included |
| Small-caps | Included | Included (IMI = deep small-cap) |
| Approx. holdings | Several thousand | Several thousand |
Cost and Tax Considerations
On fees, VWO has historically been a hair cheaper, sitting around 0.07-0.08% versus roughly 0.09% for IEMG. On a $10,000 position that gap is a couple of dollars a year — real, but trivial next to the country-classification difference. Both are dramatically cheaper than the legacy EEM fund, which charges far more for similar exposure and exists mostly as a trading vehicle.
Emerging-market funds also generate foreign tax that you may be able to recover through the foreign tax credit, which favors holding these funds in a taxable account rather than an IRA where the credit is wasted. Both VWO and IEMG are reasonably tax-efficient ETFs that rarely distribute capital gains thanks to the in-kind creation/redemption mechanism shared by all ETFs.
Tip: Because emerging-market funds pay foreign taxes you can reclaim via the foreign tax credit, holding VWO or IEMG in a taxable brokerage account is often more efficient than burying it in an IRA.
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Which Should You Buy?
If you want the cheapest broad emerging-markets exposure and you already get South Korea from a developed-international fund like VEA (which uses FTSE and therefore includes Korea), VWO fits cleanly with no overlap or gap. This is the natural pairing inside a Vanguard-style portfolio. If you build with iShares or MSCI-based funds, IEMG keeps your classification consistent and folds Korea into your emerging sleeve.
The honest answer is that either fund is an excellent, well-diversified, cheap way to own emerging markets, and the decision should follow the rest of your portfolio rather than a marginal fee difference. Just don't accidentally double-count or skip South Korea by mixing a FTSE emerging fund with an MSCI developed fund, or vice versa.
Important: Mixing index providers can create gaps or overlaps. Pairing FTSE-based VWO with an MSCI-based developed fund (or the reverse) can leave South Korea either double-counted or missing entirely.
Frequently Asked Questions
What is the main difference between VWO and IEMG?
The index provider. VWO follows FTSE, which classifies South Korea as developed and therefore excludes it; IEMG follows MSCI, which still treats South Korea as emerging and includes it, often around a tenth of the fund. Both are broad, cheap, and hold China, Taiwan, and India heavily, but the Korea distinction is the substantive one.
Does VWO or IEMG include China?
Both do, heavily, including mainland China A-shares. China is typically one of the largest country weights in each fund, alongside Taiwan and India. If you want to avoid China specifically, neither of these broad funds is the right tool; you would need an ex-China emerging-markets fund instead.
Should I hold emerging-market ETFs in a taxable account or an IRA?
Often a taxable account. Emerging-market funds pay foreign taxes that you can recover through the foreign tax credit, but only in a taxable account; that credit is lost in an IRA or 401(k). Both VWO and IEMG are also tax-efficient ETFs that rarely distribute capital gains, which further suits taxable holding.
Is VWO or IEMG cheaper?
VWO has historically held a slight edge, around 0.07-0.08% versus roughly 0.09% for IEMG. The difference is a few dollars a year per $10,000 invested, far smaller than the impact of the South Korea classification difference. Confirm current figures on each fund's fact sheet, since issuers adjust fees over time.
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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.