Emerging Market ETF
Updated on March 15, 2023
Emerging Market ETFs (Exchange Traded Funds) are ETFs exclusively focusing on stocks traded in ‘Emerging Markets’, also known as ‘EMs’. Emerging markets are defined as markets of developing economies which have a strong growth trajectory with high return potential for investors. India, Brazil, Indonesia, Latin America, several African and European countries are classified as emerging markets.These emerging market ETFs are passively managed investments which track an underlying index. Different Fund Managers track different indices across emerging markets and these ETFs contain stocks from different countries. These ETFs have a good scope for capital appreciation over time, as these countries provide an upcoming consumer base, growing economy and good internal demand.
Features of Emerging-market ETFs
Features of Emerging-market ETFs are:
1. Emerging-market ETFs invest in stocks traded in emerging markets with strong return potential.
2. Emerging market ETFs are ideal for investors having a long-term investment horizon.
3. These ETFs provide investors with diversification across markets/economies and thus different market cycles globally.
4. Emerging market ETFs can offer outsized returns, especially to investors from developed markets, where the scope for growth might be limited.
Limitations of Emerging Market ETFs
Emerging Market ETFs can be quite volatile. These markets are sensitive to the internal as well as external conditions like regime change, political situation, international commodity prices, export demand etc and hence can have an adverse impact on ETF investments.