Emerging-market ETFs: what to know

What is an emerging market?

“Emerging markets” is a broad label for countries grouped together by an index provider. It can include markets across Asia, Latin America and elsewhere. Different index providers draw the line differently, so check which countries a particular fund actually covers.

Risks are not all the same

Emerging-market investing can involve currency movements, political uncertainty, different trading conditions and concentration in certain industries or countries. It can diversify a developed-market portfolio but still lose money.

An example of a more specialised fund

Avantis AVTE is an Australian-listed emerging-markets active ETF that uses a rules-informed approach. That is different from a straightforward market-cap-weighted emerging-markets index fund. The issuer documents explain its objectives, fees and risks; its label alone is not enough to decide whether it belongs in a portfolio.

Why emerging markets can behave differently

Emerging-market funds can contain very different countries and industries. A fund could be heavily weighted toward a few large markets or companies, even if it owns hundreds of shares. Political decisions, currency moves, trading access and investor protections can all affect results.

Adding an emerging-markets fund doesn't necessarily increase diversification if your existing global fund already holds those same companies. Some global benchmarks include emerging markets, while developed-markets benchmarks do not. Check the index coverage before adding another fund.

Read the country mix in the fund

1. Open the issuer's current country-allocation and top-holdings tables.
2. Check whether it follows an index or has a manager choosing securities.
3. Compare fees and how companies are weighted.
4. Look for overlap with any all-world or regional fund you already hold.

Do this as a research exercise first. More countries on a label doesn't guarantee better returns or lower risk.