Investment Options: Emerging Market Stocks

Driven by growth in countries like China and Brazil over the last few decades, Emerging Market (EM) stocks have grown from representing less than 1% to now over 10% of the world’s stock market value. It has been a dramatic shift, yet many US investors tend to own very little to no EM stock investments.

With today’s endless menu of low-cost Emerging Market stock funds, there’s very little reason to keep them out of your strategic portfolio. Once you decide to include them, the tough decision is selecting a fund to use.

As with other asset classes, I prefer index funds and ETFs that hold hundreds of stocks instead of buying individual stocks directly — keeping costs low and diversifying as much as possible. With EM stocks, this really is the only viable option since buying individual stocks is unrealistic for the average investor.

Here are some of my basic requirements when selecting an investment for a given asset class:

  • Asset class purity. How well does it represent the asset class I’m looking for?
  • Cost. Besides the expense ratio, the turnover ratio is another factor to consider, as trading incurs transaction costs and capital gains taxes.
  • Fund management. ETFs and index funds come and go, so stick with managers with a track record of managing these types of investments.

The following is a list of notable ETFs that track traditional EM stock indexes. For most investors, this is the place to start.

Source: Morningstar, as of 12/29/2014
Name Ticker Fund Size ($MM) Net Expense Ratio Note
Vanguard FTSE Emerging Markets VWO 45,878 0.15% Largest by assets
iShares MSCI Emerging Markets EEM 32,212 0.67% Most traded
iShares Core MSCI Emerging Markets IEMG 6,087 0.18% Broadest coverage
Schwab Emerging Markets Equity SCHE 1,115 0.14% Lowest cost

Even with EM stocks, there are many next generation or smart beta funds that are available. If your EM stock allocation is large, one of the funds below could be a nice complement to one of the traditional funds above. Surprisingly, there are no traditional EM value index funds available to the public.

Source: Morningstar, as of 12/29/2014
Name Ticker Fund Size ($MM) Net Expense Ratio Note
WisdomTree Emerging Markets Eq Inc DEM 2,484 0.63% Dividend
WisdomTree Emerging Markets SmCp Div DGS 1,532 0.63% Small-cap dividend
SPDR® S&P Emerging Markets Small Cap EWX 476 0.65% Small-cap
PowerShares FTSE RAFI Emerging Mkts PXH 367 0.49% Fundamentally weighted
Schwab Fdmtl Emerg Mkts Lg Co Idx SFENX 333 0.50% Fundamentally weighted


  • Fund size of at least $200MM
  • Net expense ratio of 0.75% or less
  • Turnover of less than 50%
  • At least 200 holdings
  • Available to the public without an advisor

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