Emerging markets often have higher economic growth rates compared to developed markets. Economies such as China, India, Brazil, and Mexico are experiencing significant industrialization and urbanization, leading to increased consumer spending and investment opportunities. Also, emerging markets ETFs offer exposure to a diverse range of economies and industries.
Given the backdrop, it could be wise to invest in best-performing emerging markets ETFs iShares MSCI Emerging Index Fund (EEM), Vanguard FTSE Emerging Markets ETF (VWO), and iShares Core MSCI Emerging Markets ETF (IEMG), with a high potential for returns and instant diversification.
According to the International Monetary Fund (IMF), the world economy is expected to continue growing at 3.2% during 2024 and 2025, where the advanced economies are expected to rise 1.7% in 2024 and 1.8% the following year. Emerging markets and developing economies will grow by 4.2% in both 2024 and 2025. The forecast for global growth five years from now is at 3.1%.
Large emerging markets are anticipated to play a greater role in powering global economic growth in the upcoming years with demographic shifts and a growing consumer class. Guyana is expected to be the first among the fastest-growing emerging economies, with a CAGR of 19.8% during the forecast period (2024-2029).
This is further followed by Mozambique, Rwanda, and Bangladesh, with strong CAGRs of 7.9%, 7.2%, and 6.8%, respectively. Moreover, emerging economies like China, India, Brazil, Indonesia, and Mexico grow at higher rates than the average of the leading advanced economies over the next decade.
Besides, last year marked a historic period for emerging-market fixed income as the interest rates set by central banks were, for the first time, on par with those in developed markets. This convergence in interest rates likely suggests that emerging-market equities have outperformed, given improving economic growth.
Given these encouraging trends, let’s look at the fundamentals of the top three Emerging Markets Equities ETFs, beginning with number 3.
ETF #3: iShares MSCI Emerging Index Fund (EEM)
EEM is a fund launched by BlackRock, Inc. and managed by BlackRock Fund Advisors. The fund invests in public equity markets of global emerging regions and stocks of companies operating across diversified sectors. The fund seeks to track the performance of the MSCI Emerging Markets Index by using a representative sampling technique.
The fund has assets under management (AUM) of $19.01 billion. EEM’s top holdings include Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) with an 8.42% weighting, followed by Tencent Holdings Ltd. (TCEHY) at 4.35%, and Samsung Electronics Co., Ltd. and Alibaba Group Holding Limited (BABA) at 3.62% and 2.34%, respectively.
The ETF has a total of 1213 holdings, with its top 10 assets comprising 25.18% of its AUM. EEM’s expense ratio is 0.70%, higher than the category average of 0.50%. Over the past month, its fund inflows were $201.48 million.
EEM has surged 9.4% over the past six months and 10.3% over the past year to close the last trading session at $43.36. It has a beta of 0.74. The fund’s NAV was $43.19 as of May 22, 2024.
EEM’s POWR Ratings reflect solid prospects. The fund has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EEM has an A grade for Trade, Buy & Hold, and Peer. Within the A-rated Emerging Markets Equities ETFs group, it is ranked #3 of the 101 ETFs.
To access all EEM’s POWR Ratings, click here.
ETF #2: Vanguard FTSE Emerging Markets ETF (VWO)
VWO is an exchange-traded fund launched and managed by The Vanguard Group, Inc. It invests in stocks of companies located in emerging markets worldwide like China, Brazil, Taiwan, and South Africa. The fund tracks the performance of the FTSE Emerging Markets All Cap China A Inclusion Index by using a representative sampling technique.
With $80.62 billion in AUM, VWO’s top holdings are TSM with a 7.06% weighting, TCEHY at 3.42%, and Vanguard Cash Management Market Liquidity Fund and BABA at 2.10% and 2.01%, respectively. The ETF has a total of 4784 holdings, with its top 10 assets comprising 20.75% of its AUM.
The fund has an expense ratio of 0.08%, lower than the category average of 0.50%. VWO fund inflows were $9.29 million over the past month and $494.57 million over the past six months.
VWO pays an annual dividend of $1.46, which translates to a 3.28% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 14.7% over the past three years.
VWO has gained 9.7% over the past six months and 10.6% over the past year to close the last trading session at $44.40. In addition, it has climbed 11.8% year-to-date. It has a beta of 1.62. The fund’s NAV was $44.42 as of May 22, 2024.
VWO’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade and Buy & Hold. Of the 101 ETFs in the Emerging Markets Equities ETFs group, VWO is ranked #2.
Click here to see all the VWO ratings.
ETF #1: iShares Core MSCI Emerging Markets ETF (IEMG)
IEMG offers outstanding coverage of emerging markets and was launched by BlackRock. It provides comprehensive exposure by including smaller firms in the portfolio. IEMG tracks a market-cap-weighted index of emerging-market firms, covering 99% of market capitalization.
The fund has an AUM of $157 million. Its top holdings include TSM with a 7.17% weighting, followed by TCEHY at a 3.71% weighting, and Samsung Electronics Co., Ltd. and BABA at 3.10% and 2.00%, respectively. IEMG has a total of 2874 holdings, with the top 10 assets comprising 21.47% of its AUM.
The fund has an expense ratio of 0.09%, lower than the category average of 0.50%. Over the past six months, IEMG fund inflows came in at $1.53 billion. Also, it has a beta of 0.75.
IEMG has gained 9.5% over the past six months and 11.2% over the past year to close the last trading session at $54.25. The fund has a NAV of $54.27 as of May 22, 2024.
IEMG’s POWR Ratings reflect this strong outlook. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
IEMG has an A grade for Buy & Hold and Trade. It also has a B grade for Peer. The fund has topped the list of 101 ETFs in the same group.
To access all the POWR Ratings for IEMG, click here.
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VWO shares were trading at $44.19 per share on Thursday afternoon, down $0.21 (-0.47%). Year-to-date, VWO has gained 7.62%, versus a 11.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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