![em-etfs](./../wp-content/uploads/2024/02/em-etfs.jpg)
Including an emerging market ETF in your portfolio is a great way to increase diversification, especiallyĀ because of their lower correlation with developed markets ETFs.
If you already invest inĀ IWDAĀ or youāre not happy with the internal allocation ofĀ VWCE, you might want to add an emerging market ETF to your portfolio.
Iāll list a few options that are available in Europe and declare the winner afterwards.
Emerging Market ETFs Comparison
1)Ā EMIM
Ticker symbols: EMIM, EIMI, ISIN: IE00BKM4GZ66
EMIMĀ (iShares Core MSCI EM IMI UCITS ETF)Ā is an iShares ETF tracking theĀ MSCI Emerging Markets index.
It has aĀ total expense ratioĀ of 0.18% and is an accumulating fund (reinvests the dividends). Its TER is higher compared to US ETFs likeĀ CSPX or VUSA, but at the same time quite cheap for an emerging market ETF.
By investing in this fund, you get exposure to over 2800 companies in developing countries. These companies vary in market cap, so youād be diversified in large, mid, small-cap companies.
Below is the geographical distribution of EMIM:
For investors that prefer aĀ distributing rather than an accumulatingĀ alternative of this ETF, thereāsĀ IEEMĀ (iShares MSCI EM UCITS ETF (Dist)), sharing most of the characteristics and tracking the same index.
2)Ā ICHN
Ticker symbols: ICHN, ICGA, ISIN: IE00BJ5JPG56
ICHNĀ (iShares MSCI China UCITS ETF)Ā is anĀ ETFĀ offered by the same provider that tracks the MSCI China index.
It has a TER of 0.4% and is an accumulating fund.
This is a good option for investors that want to invest in the Chinese stock market, but donāt like additional emerging markets exposure.
Itās worth mentioning that Tencent Holdings and Ali Baba Group are 20% of the allocation of the fund. At the same time, itās quite diversified, covering ~85% of the Chinese market, distributed across large and mid-cap companies.
Because geographically its concentrated in one country, below is the sector distribution of the ETF:
3)Ā BKF
BKFĀ (iShares MSCI BIC ETF)Ā is another emerging market ETF tracking the MSCI BIC index.
BICĀ stands forĀ Brazil,Ā India,Ā China. Thereās also a BRIC variation, which also includes Russia.
This ETF has a TER of 0.7% and distributes the dividends.
Although more expensive than the previous ones,Ā BKFĀ may be an option for investors that look for a more concentrated position thanĀ EMIM, but a more diversified one thatĀ ICHN. With China having ~65% allocation at the time of writing, it may be the sweet spot between the 30% and 100%. And the inclusion of India and/or Brazil might be crucial for some investors.
I wouldnāt recommend it for a large allocation in a diversified portfolio, as itād heavily increase the average cost, reducing the long-term growth potential.
My Pick For an Emerging Market ETF
Given how different the choices are, the decision will really depend on what you want in your portfolio.
However, thereās an obvious choice when comparing all the relevant aspects of the ETFs:
- Geographical diversification:Ā EMIM
- Cost:Ā EMIM
- Number of companies:Ā EMIM
- Market cap variety: EMIM
- Fund size:Ā EMIM
EMIMĀ is the clear winner.
Itās a fact, EMIM is the way to go for investors that seek global exposure.
The only reasonĀ not to go with it is if someone prefers a more concentrated position. As mentioned before, some investors might want exposure to China, but not necessarily to other countries. This, of course, should be taken into account, and I think that ICHNĀ then becomes a reasonable pick.
And lastly, I donāt think that an emerging market ETF is a must in everyoneās portfolio. It really depends on the expectations and preferences of the investor.
Historically, EMās performance behaves more like a hedge in a downturn economy than something that overperforms the developed markets during good times.
Anyway, Iāve never had more than 5% of my portfolio in emerging markets, and I think 5-10% is a reasonable allocation for investors that want EM exposure. Keeping it at 0% is perfectly fine as well, like I do now.
Now itās your turn:
Which Emerging Markets ETF is your pick?
For more specific posts covering investing from Europe, visit: EU Investors Handbook.
If these posts are too advanced for you, visit: How to Start Investing: A Complete Beginner Series.