What to Expect from ETF Emerging Markets

Emerging markets ETF follow the performance of countries such as Brazil, India and other new opportunity funds in economies and countries that are developing. An emerging markets ETF, or exchange traded fund, tracks closely the indices that closely follow companies in emerging market countries. The performance of these funds typically match the returns and performance of the index of which they are based.

Exchange Traded Funds (ETF)

Exchange traded funds (ETFs) are investment company shares that are similar to mutual funds, but not the same thing. Often times these types of packaged securities are confused with one another. The way that ETFs are distinguishable from mutual funds is through the way in which they are managed. ETFs are passively managed fund that mimic the returns of the underlying index which they are tracking. Their objective is to match those returns closely, not necessarily outperform the index. The advantage to the investor with an ETF is that it gives them exposure to the returns of an emerging market index and the stocks that underlie it without having to buy individual shares of each component stock.

A mutual fund on the other hand is an actively managed fund that seeks to outperform the market, or a specific segment or sector of the market. It will command higher management fees and other charges for the opportunity to pursue an investment strategy that will outperform the market.

Emerging Markets ETFs

Emerging markets ETFs look at the trends in various emerging market indices and seeks to provide investors with an opportunity to achieve those returns. Emerging markets are deemed to be a higher risk than more developed markets such as those in Western Europe and the United States. Emerging markets offer a greater growth potential and for an investor the opportunity to experience higher returns than if invested in a U.S. domestic ETF.

Determining the Best Emerging Market ETF

To determine the best emerging market ETF that is available and see if the fund’s strategy and investment style match your investment objectives, you should look at a copy of the fund’s prospectus. The prospectus is a legal document that is required to be given to any investor who wishes to purchase shares of the ETF. In the prospectus is standardized language that will provide details on the funds performance, investment management team, objectives, goals and style. Reviewing this information in comparison to the prospectuses for other emerging market ETFs is a good start to understanding what you should expect from the fund.

Track Performance Data

You can also track the performance of a specific emerging market ETF of interest against its benchmark index. You should also compare that performance to that of other ETFs that are non-emerging market funds. This will give you a base of comparison, both between the ETF and its benchmark index and the ETF and other ETFs. Doing this will help you determine how to gauge the expectations for your emerging markets.