Today, FNDE allocates around 20% of its weight to China, significantly lower than its aforementioned rivals. However, FNDE “employs no direct limit on country weightings, so geographic diversification could still be an issue in the future. Also, it weights holdings by fundamental measures rather than market cap, making it a value-oriented strategy,” according to Morningstar.

Emerging markets are enjoying improved fundamentals thanks to corporate earnings improving as economic growth rebounds and strengthening currencies against the U.S. dollar on the back of improved economic outlooks.

FNDE “features a heavy bias toward stocks from the energy and materials sectors–segments of the market that are heavily exposed to volatile commodity prices and don’t always compensate investors for bearing that volatility,” said Morningstar.

For more on smart beta ETFs, visit our Smart Beta Channel.

Tom Lydon’s clients own shares of VWO.

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