Best Emerging Market Funds for 2023
Emerging markets account for a sizeable proportion of global GDP (gross domestic product). Emerging market funds can offer investors exposure to nations across the world which are undergoing rapid economic development. In this 'Best Emerging Market Funds' article, we cover what they are and the pros and cons of investing in emerging markets.
Table of Contents
- Emerging market funds are funds that invest in equities from emerging markets like China, Brazil, India, Mexico and others
- The top 20 ‘emerging market’ countries together account for one-third of the global GDP
- Emerging market funds may add diversification to a portfolio allowing investors to receive the performance of emerging markets
- Investing in emerging markets tends to exhibit higher levels of volatility
What are Emerging Market Funds
Emerging market funds are Exchange-Traded Funds (ETFs) or investment trusts that invest in emerging markets. ‘Emerging markets’ is the term used to describe nations which possess some characteristics of developed nations, but not all. Often these nations are in the process of rapid economic development thanks to increasing industrialisation and digitalisation.
An ETF or investment trust is an investment product that invests in a basket of stocks that track a certain theme, such as emerging markets. The fund then issues shares for investors to purchase, allowing them to receive the performance of the basket of stocks held in the fund.
Best Emerging Market Funds to Watch
Below is a list of some of the best emerging market funds to watch this year. The ‘best’ investment is subjective and depends on personal factors such as an investor’s financial situation and their investment horizon. However, the list below can act as a starting point for further research.
- iShares MSCI Emerging Market Fund – Invests according to MSCI Emerging Markets Index
- Vanguard FTSE Emerging Market Fund – Invests according to the FTSE Emerging Markets Index
- Templeton Emerging Markets Investment Trust – Invests into a hand-picked range of stocks from emerging market countries
iShares MSCI Emerging Market Fund
The iShares MSCI Emerging Market Fund is an ETF that attempts to track the performance of an index of large- and mid-capitalisation emerging market stocks. The index in question is the MSCI Emerging Markets Index, which covers roughly 85% of the free float-adjusted market capitalisation across 24 countries which qualify as ‘emerging markets’. This includes countries like China, India, Taiwan, South Korea, and Brazil.
The top 10 holdings of this emerging market fund by size of capital allocation are: Taiwan Semiconductor Manufacturing LTD (~6.4%), Tencent Holdings LTD (~4.1%), Samsung Electronics LTD (~3.7%), Alibaba Group Holding LTD (~2.7%), Reliance Industries LTD (~1.3%), Meituan (~1.2%), PDD Holdings Ads Inc (~1%), ICICI Bank LTD (~0.9%), Infosys LTD (~0.9%), China Construction Bank Corp H (~0.8%).
The top sectors in this iShares MSCI Emerging Market Fund include Financials (~22%), Information Technology (~20%), Consumer Discretionary (~13%), and Communication (~9%). The rest of the fund’s capital is spread in smaller amounts over several different sectors including Materials, Industrials, and Consumer Staples.
Vanguard FTSE Emerging Market Fund
The Vanguard FTSE Emerging Market Fund was launched in 2005. It is issued by Vanguard who spearheaded the development of index investing. The fund invests in a number of emerging market countries like China, India, Taiwan, Brazil, and Saudi Arabia and tracks the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. This index is a market capitalisation-weighted index that is made up of large, mid-, and small capitalisation equities in emerging markets.
The top 10 holdings of this emerging market fund in order of capital allocation include: Taiwan Semiconductor Manufacturing LTD (~4.9%), Tencent Holdings LTD (3.5%), Alibaba Group Holding LTD (~2.7%), Reliance Industries (~1.3%), Meituan Dianping Class B (~1.2%), Infosys LTD (~0.8%), Taiwan Semiconductor LTD ADR (~0.8%), HDFC Bank LTD (~0.8%), Vale SA (~0.7%), China Construction Bank Corp. Class H (~0.7%).
The top sectors in this fund are Financials (~22%), Technology (~15%), Consumer Discretionary (~14%), and Telecommunication (~9%). The rest of the fund’s capital is spread in small amounts over other sectors like Basic Materials, Consumer Staples, and Industrials.
Templeton Emerging Markets Investment Trust
The Templeton Emerging Markets Investment Trust is issued by Franklin Templeton Investments, which is an American asset manager with around $1.5 trillion in assets under management. An ETF is open-ended which means that its number of shares can increase or decrease depending on the demand. An investment trust is closed-ended which means there are a fixed number of shares available.
The top 10 equities held by this fund by size of capital allocation are Taiwan Semiconductor Manufacturing LTD (~10.4%), Royal Bank of Canada (~6.3%), ICICI Bank LTD (~5.4%), Samsung Electronics LTD (~5.4%), Alibaba Group Holding LTD Ordinary Shares (~4.8%), NAVER Corp (~3.3%), Tencent Holdings LTD (~3.1%), MediaTek Inc (~2.9%), Petroleo Brasileiro SA Petrobras Participating Preferred (~2.8%), Prosus NV Ordinary Shares Class N (~2.6%).
The top sectors this fund invests in are Information Technology (~25%), Financials (~25%), Consumer Discretionary (~12%), and Communication Services (~9%). Other sectors covered by this fund include Industrials, Materials, and Health Care, though these have earned smaller allocations on the fund’s capital.
How to Invest in Emerging Market Funds
With Admirals, you can invest in emerging market funds and stocks with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission
- Germany and France stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission
Learn more about investing commissions on the Admirals Contract Specification page. To search for global stocks and ETFs from the Admirals MT5 web platform, use these four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Conclusion: Pros & Cons of Investing in Emerging Market Funds
Investing in emerging market funds can sometimes lead to a higher potential for growth. However, this is far from a guarantee and relies on the fact that a smaller company valued at $1 million needs only $1 million to double in size, whilst a $2.8 trillion company like Apple needs $2.8 trillion to double in size. Emerging markets are often developing economies that undergo rapid economic growth akin to the industrial and digital revolutions. Investing early into a nation that still has room for growth is the main aim of investing in emerging market funds.
However, investing in emerging market funds is associated with much higher volatility. As emerging market countries have smaller economies these are more easily affected by singular events. This will then have a large impact on the country's stock market leading to higher volatility price swings.
Another factor to consider is that emerging market funds cover nations which are often undergoing rapid economic, and sometimes political, changes. These changes can lead to instability and subsequently uncertainty for investors. Developing nations are almost inherently complex, and navigating through legal frameworks and market structures can be difficult, let alone when they are also subject to frequent changes.
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FAQs on Best Emerging Market Funds
What are emerging market funds?
Emerging market funds are ETFs or investment trusts which invest in stocks based in ‘emerging markets.’ Emerging markets are economies such as those in India, Brazil, Mexico, Indonesia and many others.
Are emerging market funds a good investment?
Emerging markets can form part of an investor's portfolio seeking diversification into growing economies. While these can lead to higher returns if economic conditions align, they are also associated with higher risk. Investors should consider their risk tolerance levels and understanding of complex economies.
What is the most popular emerging market ETF?
The largest emerging market fund is Vanguard’s FTSE Emerging Markets ETF (VWO). This fund has more than $72 billion in assets under management. Most of that capital is allocated to Chinese equities (~32%), followed by Taiwan (~18%), and India (~17%).
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