An emerging markets exchange-traded fund (ETF) is a listed vehicle that invests in stocks from developing economies. They can offer investors exposure to economies experiencing rapid growth and industrialization but still facing higher volatility and structural challenges than developed nations.
Many of the world's largest non-NATO economies belong to BRICS countries -- Brazil, Russia, India, China, and South Africa -- all of which are classified as emerging market countries.
NYSEMKT: IEMG
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The fund is market-cap weighted, meaning larger economies dominate its holdings. In early 2026, China, India, Taiwan, and South Korea made up the bulk of the portfolio.
This ETF is widely popular, with $128 billion in assets under management (AUM), making it one of the most liquid emerging markets ETFs, with a tight 0.01% 30-day median bid-ask spread. While its 10-year annualized return sits at 8.35%, this reflects the underperformance of emerging markets relative to developed markets and the strength of the U.S. dollar, which has weighed on foreign equity returns.
NYSEMKT: VWO
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NYSEMKT: SPEM
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While the underlying index includes over 7,200 stocks, the SPDR Portfolio Emerging Markets ETF holds slightly more than 3,000 due to the sampling methodology. The fund avoids illiquid or extremely small companies that don't significantly affect overall market returns, improving efficiency while maintaining broad exposure.
The ETF is market cap-weighted, with its largest country allocations in China, India, Taiwan and Brazil. The SPDR Portfolio Emerging Markets ETF has posted an 8.62% annualized return over 10 years. It remains a low-cost option with a 0.07% expense ratio, making it a solid choice for investors looking for broad emerging market exposure with minimal fees.
4. Schwab Emerging Markets Equity ETF
The Schwab Emerging Markets Equity ETF (SCHE -2.19%) tracks the FTSE Emerging Index while maintaining a low 0.07% expense ratio. The fund holds around 2,100 stocks, offering a well-diversified mix of small-, mid-, and large-cap companies.
NYSEMKT: SCHE
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Despite including smaller stocks, the Schwab Emerging Markets Equity ETF is market-cap weighted, meaning larger companies dominate its portfolio. This has resulted in a weighted average market capitalization of $237 billion, giving the fund a tilt toward large-cap stocks, similar to other major emerging markets ETFs.
NYSEMKT: AVEM
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The Avantis Emerging Markets Equity ETF systematically screens stocks based on multiple factors, prioritizing smaller companies, undervalued stocks, and highly profitable businesses. This factor-based strategy aims to outperform traditional market-cap-weighted emerging market ETFs over time.
Despite its active approach, this fund remains broadly diversified, holding more than 3,500 stocks across various emerging markets. It also maintains a reasonable 0.33% expense ratio, making it an affordable choice for investors seeking enhanced emerging market exposure.
Criteria for selecting the top emerging markets ETFs
- Diversification: Avoid funds overly concentrated in one country (like China) or a single sector, unless that is your goal. Look for ETFs spanning multiple regions and industries to reduce risks.
- Fees: Low costs are crucial for long-term returns. Passive ETFs often charge under 0.10%, while some active funds stay competitive under 0.50%.
- Size and liquidity: Favor ETFs with at least $1 billion in assets under management, which generally means tighter bid-ask spreads, better liquidity, and lower tracking error.
Benefits and risks of investing in emerging market ETFs
Benefits
- Potential for outperformance when U.S. or other developed markets lag
- Access to high-growth companies, from Chinese e-commerce to Brazilian natural resources
- Expanding middle-class populations in many emerging economies create long-term demand for goods and services
Risks
- Higher volatility due to country-specific risks such as political instability, corruption, or uneven regulation
- Potential for nationalization or forced delisting of companies if governments tighten control or conflicts arise
- Vulnerable to foreign exchange swings, with a rising U.S. dollar often creating headwinds unless the ETF uses currency hedging
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Tips for investing in emerging market ETFs
Emerging market ETFs can add diversification and growth potential, but they require more homework than U.S. or developed-market funds. A few practical steps can help manage those risks:
Read the index methodology carefully: Not all emerging market ETFs define the universe the same way. MSCI and FTSE differ on country classifications. South Korea, for example, may be treated as developed in one index and emerging in another. Some China-focused ETFs may exclude A-shares and only hold H-shares or offshore listings. These differences can materially change exposure.
Decide whether to hedge currency risk: Most emerging market ETFs are unhedged, meaning returns are affected by local currencies relative to the U.S. dollar. Currency swings can either boost or hurt returns. Hedging can reduce volatility, but it adds cost and may limit upside. The right choice depends on your time horizon and tolerance for currency risk.
Check liquidity and trading costs: ETF liquidity depends heavily on the liquidity of the underlying markets. Emerging market ETFs often have wider bid-ask spreads than U.S. equity ETFs. Reviewing the 30-day median bid-ask spread is a practical way to estimate trading friction. Wider spreads mean higher implicit costs when buying or selling.
