10 Best Emerging Markets ETFs of 2023 by Performance

Top-performers focused on dividend-paying stocks and smaller capitalizations.

Early momentum for emerging markets faded as 2023 progressed. Investors expected China’s economy to emerge stronger from its zero-COVID policy and a weaker U.S. dollar, but this scenario did not materialize, and returns weakened for funds with heavy China portfolio weightings. Thus, ex-China ETFs fared better in the year while funds focusing on dividends and small caps were top performers.

Learn more about investing in emerging markets, including the associated benefits and risks, and see a list of top-performing emerging markets ETFs in 2023. 

What Is an Emerging Markets ETF? 

An emerging markets ETF is an exchange-traded fund that provides exposure to a basket of securities from emerging market economies. Emerging markets refer to countries that are in the process of rapid industrialization, experiencing higher economic growth rates compared to developed economies.  

Emerging markets ETFs provide investors with exposure to multiple countries across different regions, such as Asia, Latin America, Africa and Eastern Europe. Common countries found in these ETFs include China, India, Brazil, South Korea, Russia, Mexico and others. 

Investors should note that emerging markets come with higher risk compared to investing in developed markets. Emerging economies may experience higher volatility, currency fluctuations, political instability and less developed financial markets. However, they also offer the potential for higher returns due to their growth prospects. 

The largest emerging markets ETF is Vanguard FTSE Emerging Markets ETF (VWO), with $72.2 billion in assets as of December 8, 2023. 

10 Best Emerging Markets ETFs by 2023 Performance 

Performance data as of December 8, 2023. Country ETFs were not included in our search. 

Pros & Cons of Investing in Emerging Markets ETFs

Investing in emerging markets ETFs offers unique opportunities and benefits, such as growth potential and diversification; however, these funds present unique risks, such as higher volatility, currency risk, and political and regulatory risks, for investors to understand.  

Here are the key pros and cons to consider before investing in emerging markets ETFs: 

Pros 

• Growth potential: Emerging markets have the potential for higher economic growth rates compared to developed economies. Investing in ETFs focused on these markets allows investors to participate in the growth of industries and companies that may outperform their counterparts in developed countries. 
• Diversification: Emerging markets ETFs provide geographic diversification by offering exposure to a broad range of countries and industries. This diversification can reduce the risk associated with investing in a single market. 
• Access to hard-to-reach markets: Some emerging markets may have restricted or limited access for foreign investors. Investing through ETFs can offer a more accessible and cost-effective way to enter these markets. 
• Liquidity: Emerging markets ETFs are listed on major stock exchanges, providing liquidity and ease of trading. Investors can buy and sell ETF shares at prevailing market prices during trading hours. 
• Lower expense ratios: ETFs generally have lower expense ratios compared to actively managed mutual funds. This cost-effectiveness can improve overall returns for investors. 

Cons 

• Higher volatility and risk: Emerging markets can be more volatile compared to developed markets due to factors like political instability, currency fluctuations and less mature financial systems. This higher risk can lead to larger price swings and potential losses. 
• Currency risk: Investing in emerging markets involves exposure to foreign currencies. Fluctuations in exchange rates can impact the returns of the ETF when converted back to the investor's home currency. 
• Political and regulatory risks: Emerging markets may face political instability, governance issues and changes in regulations that can affect investment prospects. 
• Less transparent information: Some emerging markets companies may have less stringent reporting standards and lower transparency compared to those in developed markets. This can make it harder for investors to assess the true financial health of the companies. 
• Liquidity and trading risks: While ETFs are liquid, some individual stocks within the ETF may have lower liquidity. This can result in wider bid/ask spreads and difficulty executing large trades. 
• Economic and market structure risks: Emerging markets can be influenced by factors like commodity prices, global economic conditions and structural challenges that may not be prevalent in developed economies. 
• Concentration risks: Some emerging markets ETFs may be heavily concentrated in specific sectors or countries, which can lead to a lack of diversification and increased exposure to the performance of those sectors or countries. 

Best Emerging Markets ETFs: Outlook for 2024

Emerging markets ETFs could face some headwinds in the first half of 2024, including a strengthening U.S. dollar and slow growth in China, as well as an increased corporate focus on diversifying supply chains amid geopolitical tensions. However, by the second half of the year, emerging markets could recover if a slowing U.S. economy prompt falling inflation and lower rates, weakening the dollar and potentially leading to inflows for emerging markets funds.

Investing in emerging markets ETFs can be an effective way for investors to diversify their portfolios and gain exposure to the growth potential of economies, such as China and India, that are expected to expand more rapidly than developed countries in the coming years.  

However, it's important to note that emerging markets carry higher risks, and their performance can be influenced by a wide range of factors, including political, economic and social developments.