There are currently 48 Emerging Market ETFs to choose from. Some of them are leveraged or inverse, some are equal weighted, some are dividend weighted, some are designed to beat the market, while some others are just trying to fairly represent the market.
Researching the ETF marketplace can be cumbersome, in my view, and can cause two major headaches for investors: the first is knowing what exactly each of these ETFs are trying to accomplish and how does this fit into your investment goals; the second is determining which is the best in class amongst all of these ETFs competing for your money.
In order to deal with the first headache for you, I have gone through each of the ETFs specializing in Emerging Markets and categorized them in a way that will quickly allow you get an idea of how each ETF is designed. Please see my report on ETF Selection for further details on how this categorization technique can help you weed through all sorts of ETF markets that you are looking to gain exposure.
In short, benchmark ETFs should be used in economic studies, asset allocation models, etc.; are designed to fairly represent a market and weighted by market cap. These will be the tickers in the lower left box in the matrix below. All of the other boxes are trying to implement some kind of different strategy by “becoming” a market in their own right, attempting to “beat” a benchmark, or they are weighted in any other way except by market cap.
So the first thing that one must decide is “What am I trying to accomplish and how should my ETF be structured to help me gain the exposure that is appropriate for me?”
To avoid anyone from running out to get more aspirin, below is my summary (by tickers) of the categorization model of ETF selection for the Emerging Markets. Note again that the bottom left box represents true benchmark ETFs.
Note that with anything else, there is some subjectivity to some of the categorization that is up for debate, but you should find this helpful nonetheless.
The remainder of this report addresses the second cause for a headache and it uses my proprietary ranking methodology to weed through the numerous Emerging Market ETFs to select what I believe to be the best among a selection of both strategy and benchmark ETFs. In other words, if you have no preference for a benchmark or a strategy ETF, then this section may help you make a decision. Keep in mind having clear stated investment goals set up before any purchase is made is highly advisable.
With that said, it may come as a surprise to some that 4 of the top ranking Emerging Market ETFs, according to my methodology were true benchmark ETFs, suggesting that the time and money invested into building a better house and trying to beat the benchmark is not paying off, in my view. This does not mean another person’s view cannot be defended or that a strategy Emerging Market ETF won’t outperform over another time frame or in the future, but the way that I have culled the data suggests to me that the time is not now.