Top Emerging Market ETFs to Watch as the U.S. Dollar Weakens

The weakening U.S. dollar has created a favorable environment for emerging market ETFs. This report delves into the top emerging market ETFs that investors should consider for global growth exposure. The analysis is based on recent performance metrics, asset under management (AUM), expense ratios, dividend yields, and geographic and sectoral exposures. The report aims to provide a comprehensive overview of the best candidates for investment, supported by detailed data and critical analysis.

Introduction

iShares MSCI Emerging Markets ETF (EEM)

Overview

The iShares MSCI Emerging Markets ETF (EEM) is one of the most prominent ETFs in the emerging market space. As of September 2024, EEM has an AUM of $17.69 billion and a NAV of $42.53. The ETF has shown a year-to-date performance of 5.7% and a dividend yield of 2.44%.

Performance and Holdings

EEM has gained 6.3% over the past month and 8.1% over the past year. Its top holdings include Taiwan Semiconductor Manufacturing Co. (9.53%), Tencent Holdings Ltd. (4.15%), and Samsung Electronics Co. (3.45%). The ETF has a total of 4,784 holdings, providing broad exposure to emerging markets.

Geographic Exposure

EEM has significant allocations to India (18.9%), Taiwan (18.6%), South Korea (11.7%), and China (9.2%). This diversified geographic exposure makes it a robust option for investors looking to capitalize on the growth potential of multiple emerging economies.

Expense Ratio and Dividend

With an expense ratio of 0.70% and an annual dividend of $1.04, EEM offers a balanced mix of growth and income. The ETF’s POWR Rating of A (Strong Buy) further underscores its attractiveness.

Vanguard FTSE Emerging Markets ETF (VWO)

Overview

The Vanguard FTSE Emerging Markets ETF (VWO) is another heavyweight in the emerging market ETF category. As of September 2024, VWO has an AUM of $77.55 billion and a NAV of $44.14. The ETF boasts a dividend yield of 3.63% and an expense ratio of just 0.08%.

Performance and Holdings

VWO has gained 12.2% over the past year and 10.4% over the past nine months. Its top holdings include Taiwan Semiconductor Manufacturing Co. (8.3%), Tencent Holdings Ltd., and Alibaba Group Holding Limited. The ETF holds over 5,900 stocks, offering extensive diversification.

Geographic Exposure

VWO’s highest exposure is to India (23%), followed by Taiwan (19.7%) and China (10.5%). This geographic allocation aligns well with the current economic trends, making VWO a compelling choice for investors.

Expense Ratio and Dividend

With an expense ratio of 0.08% and an annual dividend yield of 3.63%, VWO is one of the most cost-effective options for gaining exposure to emerging markets. Its POWR Rating of A (Strong Buy) further validates its investment potential.

SPDR Portfolio Emerging Markets ETF (SPEM)

Overview

The SPDR Portfolio Emerging Markets ETF (SPEM) is another strong contender in the emerging market ETF space. As of September 2024, SPEM has an AUM of $9.40 billion and a NAV of $37.90. The ETF has shown a year-to-date performance of 10.1% and a dividend yield of 2.63%.

Performance and Holdings

SPEM has gained 6.5% over the past month and 10.1% over the past year. Its top holdings include Taiwan Semiconductor Manufacturing Co. (7.86%) and Tencent Holdings Ltd. (3.39%). The ETF has a total of 3,177 holdings, providing substantial diversification.

Geographic Exposure

SPEM’s geographic exposure is similar to that of EEM and VWO, with significant allocations to Taiwan, China, and India. This diversified exposure enhances its growth potential.

Expense Ratio and Dividend

With an expense ratio of just 0.07% and an annual dividend of $1, SPEM offers a low-cost option for investors. Its POWR Rating of A (Strong Buy) further highlights its investment appeal.

Schwab Fundamental Emerging Markets Equity ETF (FNDE)

Overview

The Schwab Fundamental Emerging Markets Equity ETF (FNDE) is another noteworthy ETF in the emerging market category. As of September 2024, FNDE has an AUM of $6.13 billion and a NAV of $29.42. The ETF has shown a year-to-date performance of 10.1% and a dividend yield of 4.23%.

Performance and Holdings

FNDE has surged 8% over the past six months and 10.1% over the past year. Its top holdings include Taiwan Semiconductor Manufacturing Co. (5.29%) and Hon Hai Precision Industry Co. (3.99%). The ETF has a total of 376 holdings, offering focused exposure to high-growth companies.

Geographic Exposure

FNDE’s geographic exposure is concentrated in Taiwan and China, making it a targeted play on these high-growth economies. This focused exposure can be advantageous for investors looking for concentrated bets.

Expense Ratio and Dividend

With an expense ratio of 0.39% and an annual dividend yield of 4.23%, FNDE offers a compelling mix of growth and income. Its POWR Rating of A (Strong Buy) further underscores its investment potential.

iShares MSCI South Africa ETF (EZA)

Overview

The iShares MSCI South Africa ETF (EZA) is a specialized ETF focusing on the South African market. As of September 2024, EZA has an AUM of $287.37 million and a NAV of $46.25. The ETF has shown a year-to-date performance of 5.7% and a dividend yield of 3.57%.

Performance and Holdings

EZA has benefited from the strengthening South African Rand against the USD. Its top holdings include Naspers Limited, which has a significant weight in the ETF. The ETF’s sector exposure includes Financials (36.5%), Consumer Staples (13%), and Materials (11%).

Geographic and Sectoral Exposure

EZA’s focus on South Africa provides a unique investment opportunity, especially given the country’s economic potential. The sectoral exposure to Financials and Consumer Staples adds a layer of stability to the ETF.

Expense Ratio and Dividend

With an expense ratio of 0.63% and an annual dividend yield of 3.57%, EZA offers a balanced mix of growth and income. Its specialized focus makes it a unique option for investors looking to diversify their emerging market exposure.

Conclusion

The weakening U.S. dollar has created a favorable environment for emerging market ETFs. The iShares MSCI Emerging Markets ETF (EEM), Vanguard FTSE Emerging Markets ETF (VWO), SPDR Portfolio Emerging Markets ETF (SPEM), Schwab Fundamental Emerging Markets Equity ETF (FNDE), and iShares MSCI South Africa ETF (EZA) are all strong candidates for investment. Each of these ETFs offers a unique blend of geographic and sectoral exposure, performance metrics, and cost-effectiveness.

Investors should consider their individual risk tolerance, investment goals, and market outlook when selecting an ETF. The detailed analysis provided in this report aims to equip investors with the necessary information to make informed decisions. As always, it is advisable to consult with a financial advisor before making any investment decisions.