10 interesting emerging markets ETFs

Emerging market exchange traded funds (ETFs) have become an increasingly popular investment option for many investors in recent years. These ETFs offer exposure to the stock markets of developing countries, which often have high growth potential and lower valuations compared to developed markets. However, like any investment, emerging market ETFs bring their own benefits and risks. In this article, we take a closer look at the emerging market ETF industry, the benefits and risks of investing, and some alternative options to consider.

Understanding emerging market ETFs

Emerging market ETFs invest in companies in countries that are generally characterized by high levels of economic growth, rising levels of wealth, and young and growing populations. Countries that are considered emerging markets include Brazil, Russia, India, China, South Africa and many others.

The best emerging markets ETFs to buy

TheStreet Ratings model evaluates the risk-adjusted returns of all ETFs on a monthly basis. These 10 equity ETFs are currently rated the highest in TheStreet Ratings' methodology.

• iShares India 50 ETF (INDY) - A+ (B-)
• Global X MSCI China Energy (CHIE) - A (C+)
• iShares MSCI India Small Cap (SMIN) - A (C+)
• First Trust India NIFTY 50 Eq Wght (NFTY) -A (C+)
• iShares MSCI Mexico (EWW) - A (C+)
• Franklin FTSE Mexico (FLMX) - A (C+)
• SPDR S&P Emg Markets Sm Cap ETF (EWX) - A- (B)
• Direxion Daily MSCI India Bull 2X (INDL) - A- (C+)
• WisdomTree India Earnings Fund (EPI) - A- (C+)
• iShares MSCI Turkey (TUR) - A- (C+)

Benefits of investing in emerging markets ETFs

One of the main benefits of investing in emerging markets ETFs is the potential for high returns. Emerging markets are growing faster than developed countries, and investing in these markets can provide access to fast-growing companies. In addition, emerging market ETFs offer diversification benefits by investing in companies from different countries and sectors. This diversification can help reduce portfolio risk and increase returns.

Another advantage of investing in emerging market ETFs is that they can provide exposure to sectors that are not readily available in developed markets. For example, emerging markets have a large and growing middle class that is increasing demand for consumer goods and services. Investing in emerging market ETFs can provide exposure to these sectors.

Risks of investing in emerging market ETFs

One of the main risks of investing in emerging market ETFs is the higher volatility and risk associated with them. Emerging markets are less developed and may be subject to political and economic instability, which can cause sharp market fluctuations. In addition, investing in emerging markets can be more expensive as ETFs may have higher expense ratios compared to domestic ETFs.

Another risk of investing in emerging market ETFs is currency risk. Investing in companies from different countries means exposure to different currencies, which can affect returns. In addition, some emerging market ETFs may invest in companies that are heavily dependent on exports, which can be negatively impacted by currency fluctuations.

Alternatives to investing in emerging market ETFs

Investors looking for investment options other than emerging market ETFs have additional ways to diversify their portfolios. For example, they may consider investing in international equity ETFs that provide exposure to stocks from different countries around the world. Another option is global ETFs, which provide exposure to a broader range of markets and sectors. Investors can also opt for growth ETFs, which invest in companies that are expected to grow strongly in the future. When exploring alternative ETF options, investors must consider their investment objectives and risk tolerance.

Bottom line

Emerging market ETFs offer the potential for high returns and diversification benefits, but come with higher volatility and currency risks. For investors seeking alternative options, international equity ETFs, global ETFs and growth ETFs can provide diversification and exposure to different markets and sectors. When considering investing in ETFs, investors should assess their investment objectives and risk tolerance.