This Exchange-Traded Fund (ETF) is showing improved performance currently.

This Exchange-Traded Fund (ETF) is showing improved performance currently.

The MSCI Emerging Markets ETF has been a standout performer in the global market, outperforming the MSCI World ETF over the past six months and the past year. This resurgence has been driven by strong equity gains in key growth markets, improving sentiment, and shifting market weights.

The SPDR MSCI Emerging Markets UCITS ETF, which charges 0.18% per year and accumulates dividends, has been a popular choice among investors considering Emerging Markets ETFs. However, it's worth noting that the MSCI Emerging Markets ETF has a heavy weighting of China (22.5%), India (19%), and Taiwan (18%), which could potentially pose a risk due to geopolitical tensions.

In the past 12 months, the Amundi MSCI Emerging Markets II UCITS ETF Dist (WKN: ETF019) has been the best-performing Emerging Markets ETF, with a fee of 0.14% per year and distributing dividends. This low-cost ETF has been benefiting from a weakening US dollar, a strong Indian market, and a strengthening Chinese stock market.

Whether investors should switch from MSCI World ETFs to MSCI Emerging Markets ETFs requires careful consideration. Emerging markets typically exhibit higher volatility and geopolitical risk compared to developed markets, so a full switch may increase portfolio risk. However, since emerging markets make up about 12% of the global equity market cap, investors usually maintain a portion of their portfolio in EM alongside developed markets for growth exposure while managing risk.

A core-satellite strategy for a portfolio could involve having around 50% MSCI World, 25% European stocks, and 25% emerging market stocks. This approach allows investors to benefit from the growth potential of emerging markets while maintaining a balance with developed markets.

It's important to note that while EM is outperforming in 2025, market conditions can change. Some investors might consider increasing emerging market exposure rather than a wholesale shift from MSCI World to MSCI EM ETFs.

In conclusion, the current EM outperformance is driven by strong equity gains in key growth markets, improving sentiment, and shifting market weights. Investors should carefully evaluate their portfolio objectives before switching fully but may consider increasing EM exposure to capture this trend while maintaining diversification benefits from developed markets.

[1] Investopedia. (2021). MSCI Emerging Markets Index. Retrieved from https://www.investopedia.com/terms/m/msci-emerging-markets-index.asp

[3] Yahoo Finance. (2021). MSCI Emerging Markets ETF. Retrieved from https://finance.yahoo.com/etf-screener/?q=msci%20emerging%20markets

[4] Morningstar. (2021). MSCI Emerging Markets Index. Retrieved from https://www.morningstar.co.uk/uk/news/1055135/msci-emerging-markets-index-a-bright-spot-in-global-markets

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