Momentum Builds for Emerging Market: ETFs in Focus

Long-term inflation risks, chaotic tariff policies and mounting debt concerns are continuously making investors anxious and triggering investor flows out of the United States, with investors looking toward emerging market economies.

The Dow Jones Emerging Markets Index has gained 8.13% year to date and 2.68% month to date, outperforming the S&P 500 Index. The broad market index has gained 2.58% and 2.05% year to date and month to date, respectively.

Per Reuters, emerging market equity ETFs recorded $3.6 billion in inflows in May, bringing the total year-to-date inflows to $11.1 billion. Whereas, mutual funds and ETFs based in the United States saw an outflow of $24.7 billion last month.

What’s Driving the Momentum?

Emerging markets are emerging as the winners from the evolving global trade dynamics. As companies continue to diversify their operations away from economies affected by the trade tensions, emerging market economies are emerging as attractive alternatives for supply-chain realignment.

These structural shifts are prompting investors to take an active approach when allocating capital across the emerging market landscape. According to S&P Global, mature economies like Japan are seeking higher returns in emerging markets.

A weakening greenback is also boosting the attractiveness of emerging market economies for investors. Per Trading View, U.S. Dollar Index (DXY) has fallen 9.21% over the past six months and 9.56% year to date.

Improving economic fundamentals are also driving investor inflow into emerging market economies. According to Reuters, Latin America, in particular, is gaining appeal as a relatively stable investment destination amid escalating trade and military conflicts in other regions.

Robust domestic consumption is also helping the inflows into Asian markets. According to Manish Raychaudhuri, CEO of Emmer Capital Partners Ltd, as quoted on Reuters, lower debt levels and stronger growth have positioned Asian equities to benefit more from U.S. capital outflows compared to their European counterparts.

ETFs to Explore

Below, we highlight a few funds that investors can use to increase their exposure to emerging market economies.

iShares Core MSCI Emerging Markets ETF (IEMG)

iShares Core MSCI Emerging Markets ETF seeks to track the performance of the MSCI Emerging Markets Investable Market Index with a basket of 2,699 securities. The fund has amassed an asset base of $91.74 billion and charges an annual fee of 0.09%.

IEMG has double-digit exposures to China (26.4%), India (19.3%), Taiwan (18.9%) and South Korea (10.5%). The fund has a one-month average trading volume of about 12.42 million shares.

iShares Core MSCI Emerging Markets ETF has gained 4.37% over the past month and 11.33% over the past year.

Vanguard FTSE Emerging Markets ETF (VWO)

Vanguard FTSE Emerging Markets ETF seeks to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index with a basket of 5,954 securities. The fund has amassed an asset base of $88.96 billion and charges an annual fee of 0.07%.

VWO has double-digit exposures to China (26.4%), India (19.3%) and Taiwan (18.9%). The fund has a one-month average trading volume of about 8.68 million shares.

Vanguard FTSE Emerging Markets ETF has gained 3.85% over the past month and 12.40% over the past year.

iShares MSCI Emerging Markets ETF (EEM)

iShares MSCI Emerging Markets ETF seeks to track the performance of the MSCI Emerging Markets Index with a basket of 1,201 securities. The fund has amassed an asset base of $17.99 billion and charges an annual fee of 0.72%.

EEM has double-digit exposures to China (28.9%), Taiwan (18.9%), India (17.9%) and South Korea (10.1%). The fund has a one-month average trading volume of about 24.18 million shares.

iShares MSCI Emerging Markets ETF has gained 3.85% over the past month and 11.88% over the past year.

SPDR Portfolio Emerging Markets ETF (SPEM)

SPDR Portfolio Emerging Markets ETF seeks to track the performance of the S&P Emerging BMI Index with a basket of 3,066 securities. The fund has amassed an asset base of $12.12 billion and charges an annual fee of 0.07%.

SPEM has double-digit exposures to China (30.8%), India (21.5%) and Taiwan (20.5%). The fund has a one-month average trading volume of about 2.06 million shares.

SPDR Portfolio Emerging Markets ETF has gained 4.13% over the past month and 13.7% over the past year.

Avantis Emerging Markets Equity ETF (AVEM)

Avantis Emerging Markets Equity ETF employs an active strategy and seeks long-term capital appreciation by investing primarily in a diverse group of companies related to emerging markets. The fund has a basket of 3,569 securities and charges an annual fee of 0.33%. AVEM has amassed an asset base of $10.41 billion.

AVEM has double-digit exposures to China (23.2%), Taiwan (20.8%), India (18.8%) and South Korea (11.3%). The fund has a one-month average trading volume of about 768,000 shares.

Avantis Emerging Markets Equity ETF has gained 6.15% over the past month and 10.21% over the past year.

Latin America Emerging Market Economies

For investors looking to have a more concentrated exposure to Latin America emerging market economies, investors can consider iShares Latin America 40 ETF ILF and Franklin FTSE Latin America ETF FLLA.

Economies in the region have limited exposure to tariffs and global conflicts, increasingly attracting investor attention. 

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