Daniel Sotilov: ETFs in the Diversified Emerging Markets category are not rated as highly as ETFs in the U.S. Large Blend category or the International Large Blend category. Emerging market ETFs that track broad market indexes have average process pillar ratings, while process ratings for U.S. and developed market ETFs are often above average, and in some cases high. It may even reach.
This is in large part because this is one of the few categories where active managers have demonstrated an advantage. Emerging market ETFs must also address unique risks rarely seen in developed markets. Geopolitical risks such as the war between Russia and Ukraine and sanctions on Chinese companies are two examples that have surfaced in recent years. Also, some governments have the ability to influence underlying corporations to achieve political objectives that do not necessarily benefit public shareholders.
However, there are some good index tracking options to consider over the long term.
3 Best Emerging Market ETFs for 2024
- iShares MSCI Emerging Markets Minimum Volume Factor ETF EEMV
- Vanguard FTSE Emerging Markets ETF VWO
- iShares Core MSCI Emerging Markets ETF IEMG
The first Emerging Markets ETF is the Silver-rated iShares MSCI Emerging Markets Min Volume Factor ETF, which trades under the ticker EEMV.
The company is still exposed to geopolitical risks and the possibility of government intervention, but by systematically targeting lower-risk stocks and combining them in a way designed to reduce volatility, It maintains a certain degree of superiority. It’s best to think of this strategy as less sensitive to market ups and downs. This means that they tend to outperform broader emerging markets during drawdowns, but are more likely to underperform during bull markets.
In the long run, that give and take tends to dissolve. So far, the company’s long-term total returns have been valued in line with the MSCI Emerging Markets Index. And consistently following expected performance patterns bodes well for future risk-adjusted performance.
Today’s next two ETFs are similar in many ways, but with one key difference. The bronze-rated Vanguard FTSE Emerging Markets ETF, ticker VWO, and the bronze-rated iShares Core MSCI Emerging Markets ETF, ticker IEMG, both capture the entire emerging market for less than 10 basis points per year in fees.
Despite these similarities, each ETF applies slightly different filters to the markets it classifies as emerging markets. VWO punts Korean stocks because it tracks the FTSE index, which classifies Korea as a developed market. At the same time, IEMG also includes Korean stocks as they meet MSCI’s emerging market criteria.
What’s important to realize is that neither ETF is better than the other. Both are good long-term options. However, the nuances of country classification are important distinctions to consider, especially when combining these His ETFs with the developed market mutual funds and His ETFs you hold in your portfolio. As a general rule, each ETF should be combined with a developed market ETF. This means that VWO should be paired with an ETF that tracks the FTSE index, and IEMG works best with an ETF that tracks the MSCI index. By doing so, you can avoid overvaluing or undervaluing a country like South Korea in your broader investment portfolio and take full advantage of its diversification potential.
For more from Daniel Sotilov, check out 3 Best International Dividend ETFs for 2024.
