Best Emerging Market Funds UK – Invest with Zero Fees

Investing in emerging markets can be somewhat risky, but it offers potentially high upside since developing economies have a ton of room for growth.

In this guide, we will reveal the 10 best emerging market funds UK for 2021 and show you how you can invest in them today

Best Emerging Market Funds UK List

Here are our picks for the 10 best emerging market funds in the UK for 2021:

  • iShares Core MSCI Emerging Markets ETF (IEMG) – Best Emerging Markets Fund UK – Invest Now
  • Vanguard FTSE Emerging Markets ETF (VWO) – Cheapest Emerging Markets ETF UK – Invest Now
  • Schwab Emerging Markets Equity ETF (SCHE) – Best Large Cap Emerging Markets Fund – Invest Now
  • SPDR S&P Emerging Markets Small Cap ETF (EWX) – Best Small Cap Emerging Markets Fund
  • iShares MSCI India ETF (INDA) – Best India Emerging Market Fund in the UK
  • iShares MSCI Brazil ETF (EWZ) – Best Brazil Emerging Market Fund in the UK
  • iShares MSCI China ETF (MCHI) – Best China Emerging Market Fund in the UK
  • Emerging Markets Internet & Ecommerce ETF (EMQQ) – Best Digital ETF for Emerging Markets
  • WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE)
  • iShares JP Morgan USD Emerging Markets Bond ETF (EMB) – Best Emerging Markets Bond Fund

Best Emerging Market Funds UK to Invest in Reviewed

Let’s take a closer look at the 10 top emerging market funds so you can decide which is right for your portfolio.

iShares Core MSCI Emerging Markets ETF (IEMG) – Overall Best Emerging Markets Fund UK

The iShares Core MSCI Emerging Markets ETF is one of the world’s premiere emerging market funds. It manages over $50 billion in investment assets and holds over 2,500 international stocks from around the globe. The fund’s holdings are particularly concentrated in East Asian stocks – Taiwan Semiconductor Manufacturing, Alibaba, Tencent, and Samsung make up nearly 19% of the portfolio.iShares Core MSCI Emerging Markets ETF Chart

The fund has an average annual performance of 11.75% per year, and thanks to its exposure to China stocks it grew over 60% last year. The fund has a very low expense ratio of just 0.11%.

67% of retail investor accounts lose money when trading CFDs with this provider.

Vanguard FTSE Emerging Markets ETF (VWO) – Cheapest Emerging Markets ETF UK

The Vanguard FTSE Emerging Markets ETF is the largest emerging market fund in the world. It has a whopping $110 billion in assets under management. Part of the reason for its popularity is that this fund is extremely inexpensive – it has an expense ratio of 0.10%.Vanguage Emerging Markets ETF Chart

The VWO ETF has more than 5,200 stocks in its portfolio, although this hides the fact that the fund has some clear biases. More than 40% of the holdings are in Chinese stocks and 25% of the holdings are in finance stocks. On the plus side, the fund has a 5-year average annual return of 11.4% and grew by 58.3% last year.

67% of retail investor accounts lose money when trading CFDs with this provider.

Schwab Emerging Markets Equity ETF (SCHE) – Best Large Cap Emerging Markets Fund

The Schwab Emerging Markets Equity ETF lags behind the similar iShares and Vanguard funds in size, but it’s certainly not a small ETF – it has over $9 billion in assets. One of the things that make this fund unique is that it cuts out many of the small cap stocks found in the standard emerging market index funds. That makes this fund slightly less risky, as it’s primarily investing in global companies that are based in Asia, Africa, and South America.Schwab Emerging Markets Large Cap ETF Chart

The fund has an 11.7% average annual return over the past 5 years and produced returns of 57.0% last year. The 0.11% expense ratio is inexpensive, too.

67% of retail investor accounts lose money when trading CFDs with this provider.

SPDR S&P Emerging Markets Small Cap ETF (EWX) – Best Small Cap Emerging Markets Fund

The SPDR S&P Emerging Markets Small Cap ETF looks beyond the large-cap stocks that are typically weighted heavily in emerging market ETFs. No stock makes up more than 0.40% of the fund, although more than 45% of all holdings come from China and Taiwan.SPDR SP Emerging Markets Small Cap ETF Performance

Investing in small caps, particularly in the developing world, can be rewarding when the market is strong. This fund returned 72.4% last year and has a 5-year average annual return of 10.0%. However, beware that small cap stocks can be highly volatile if economic activity stalls in emerging markets.

67% of retail investor accounts lose money when trading CFDs with this provider.

iShares MSCI India ETF (INDA) – Best India ETF in the UK

India has over one billion people and was one of the fastest-growing economies in the world before the COVID-19 pandemic. If you want to get in early on India’s future growth, the iShares MSCI India ETF is one of the best ways to do it.iShares India ETF Chart

This fund is invested entirely in Indian companies like Reliance Industries, Infosys, and Tata Consultancy Services. It has 96 stocks in its portfolio and sports a 5-year average annual return of 10.1%. The fund is popular, with over $5 billion in assets under management, although the 0.69% expense ratio is slightly pricey for a passively managed fund.

67% of retail investor accounts lose money when trading CFDs with this provider.

iShares MSCI Brazil ETF (EWZ) – Best Brazil ETF in the UK

Another popular emerging market for UK investors is Brazil. The country doesn’t boast the same eye-popping GDP growth figures as India and China, but it’s still growing very quickly. Plus, investing in the iShares MSCI Brazil ETF gives you a more targeted investment in this country compared to most total emerging market ETFs.iShares MSCI Brazil ETF Chart

The fund is heavily invested in Vale, one of the world’s biggest mining stocks, so expect that company’s fortunes to have a big impact on the ETF. That said, the fund has a 5-year performance of 7.1% per year and a 1-year return of 44.9%. It comes with an expense ratio of 0.59%.

67% of retail investor accounts lose money when trading CFDs with this provider.

iShares MSCI China ETF (MCHI) – Best China ETF in the UK

The iShares MSCI China ETF is the perfect fund for investors who want to go all-in on Chinese stocks. Nearly 30% of the fund’s holdings are in Tencent and Alibaba, but there are nearly 600 Chinese stocks in all to provide diversification. The fund has an average P/E ratio of just 17.4, so there are plenty of value stocks inside the portfolio as well as growth stocks.iShares MSCI China ETF Chart

The ETF has an impressive average return of 15.4% over the past 5 years, although last year’s 42.8% return lagged broader emerging market funds. The MSCI China ETF comes with an expense ratio of 0.59% and has $6.7 billion in assets under management.

67% of retail investor accounts lose money when trading CFDs with this provider.

Emerging Markets Internet & Ecommerce ETF (EMQQ) – Best Digital ETF for Emerging Markets

The Emerging Markets Internet & Ecommerce ETF is a thematic fund that focuses specifically on digital development. To qualify for inclusion in this fund, a company must generate at least half its revenue from Internet-related activities and must be located in an emerging market. The fund has performed extremely well in recent years, achieving a very impressive 5-year average annual return of 24.0%. Last year alone, the fund jumped 101.5%.Emerging Markets Internet and ECommerce ETF Performance

There are, however, two things to note about this ETF. First is the high expense ratio of 0.86%. This is more than justified given the fund’s performance, but it is high relative to other emerging market ETFs. Second is the fund’s exposure to China. More than 60% of the ETF’s portfolio is in Chinese stocks, so a downturn in that market could have an outsized impact on the fund’s performance.

67% of retail investor accounts lose money when trading CFDs with this provider.

WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE)

The WisdomTree Emerging Markets ex-State-Owned Enterprises Fund is a total emerging market ETF that avoids state-owned enterprises. That means that any companies in which the government has more than a 20% stake won’t appear in the fund.WisdomTree ex-State-Owned Emerging Markets ETF Chart

For the most part, this doesn’t make much of a difference – companies like Alibaba, Tencent, TSMC, and Samsung still make up the fund’s largest holdings. But, on the whole, private companies tend to perform better than state-run companies over the long term. That’s evidenced by the fund’s 15.7% average annual return over the past 5 years. The 0.32% expense ratio is more expensive than similar funds, but it’s paid for by the excess performance.

67% of retail investor accounts lose money when trading CFDs with this provider.

iShares JP Morgan USD Emerging Markets Bond ETF (EMB) – Best Emerging Markets Bond Fund

While bond yields in the US, UK, and European markets have fallen dramatically over the past year, bonds in developing markets have remained an attractive income investment. The iShares JP Morgan USD Emerging Markets Bond ETF is designed to give you exposure to corporate bonds from China, Brazil, Russia, Mexico, Indonesia, and more than a dozen other countries.iShares Emerging Markets Bond ETF Chart

This bond fund returned an impressive 15.6% for investors last year and has a 5-year annualized return of 4.5%. With over 550 holdings, the risk of one default sinking the fund is low. The ETF has nearly $19 billion in assets under management and an expense ratio of just 0.39%.

67% of retail investor accounts lose money when trading CFDs with this provider.

What are Emerging Market Funds?

Emerging markets is a term used for countries that are either undergoing (or were undergoing in the recent past) rapid economic growth. In some cases, this growth is accompanied by countries’ rising influence in the global economical and political arena.

The most notable and largest emerging markets are a group of countries known as BRIC (Brazil, Russia, India, and China). In fact many emerging market funds focus overwhelmingly on Chinese stocks and bonds.

The list of emerging markets also includes countries like South Korea, Mexico, Turkey, South Africa, Vietnam, Malaysia, Indonesia, Taiwan, Saudi Arabia, Nigeria, Poland, Egypt, and Pakistan. These countries are in the process of transitioning from less developed, low-income economies toward more modern industrial and consumption-based economies.

Emerging market funds make it possible to invest in stocks and other assets in these countries. Some emerging market funds invest broadly across dozens of developing countries, while others focus on just one or two countries. Notably, emerging market funds almost never invest in companies from the US, Canada, Western Europe, Japan, or Australia.

Why Invest in Emerging Market Funds?

Why should investors bother investing in emerging market funds instead of putting their money in US stocks or European stocks? After all, the US market has outperformed most of the rest of the world, even as other countries’ economies have grown at faster paces.

The first reason is to achieve geographic and financial diversification in your portfolio. One of the things that make emerging market stocks special is that they are largely uncorrelated with price changes in US and European stocks. When the US and Europe suffered through the financial crisis in 2008, for example, Chinese stocks had a banner year. So, investing in emerging markets is a way to hedge against risk in developed markets.

On top of that, emerging markets hold a lot of promise for future returns. As developing economies continue to grow, they produce a growing middle class that can actively participate in the stock market. These people are likely to invest in their domestic stock markets (as well as the US market), which can drive up the value of stocks in these countries. On top of that, the growth of a middle class drives revenue for many of the companies in these countries, which in turn increases their value for investors.

In fact, emerging markets have outpaced the returns from all developed countries over the past 5 years. In the chart below, the black line represents the performance of an emerging market fund, the blue line represents the German DAX Index, the red line the UK FTSE 100, and the yellow line the France CAC 40.

indexes comparison

While it’s possible to invest in individual stocks in developing countries, the best emerging market funds help you reduce risk. It’s challenging for individual investors to find information about companies in some emerging markets, whereas fund managers have access to more data and better understand the countries they are investing in. On top of that, when you invest in a fund, you’re investing in dozens or hundreds of companies. That increases the chances that you pick a handful of big winners, rather than putting all your money into a company that may fizzle out as the country develops economically.

Best Emerging Market Funds Brokers

Once you’ve decided that you want to invest in emerging market funds, the next step is to choose a UK-regulated stock broker or stock app that allows you to invest in these assets. Below you’ll find our top recommended picks:

1. eToro – Invest in Emerging Market Funds UK with 0% Commission

eToro commodity broker

eToro has quickly grown into one of the top stock brokers in the world thanks to its zero-commission fee structure, a wide range of investment products, and unique copy trading network.

The broker offers a variety of asset classes to trade including stocks, ETFs, indices, commodities, currencies, and cryptocurrencies. Fund investors will be happy to find more than 450 ETFs, and eToro is adding more funds every month.

This trading platform doesn’t charge commissions for ETF trading, but does charge a small spread for trade execution. The spread is the difference between the buy and sell price and is charged by most brokers.

eToro copy portfolio

eToro is well known for its social trading network, which gives you the chance to learn from more experienced traders and share ideas. You can also copy the trades of top performers on the platform, which enables you to automate your trading. When you choose investors to copy, you can review their performance and investing style as well as their portfolio.

eToro is regulated by the FCA, CySEC, and ASIC, so client funds are separated from the company’s own funds. Client funds are also protected by FSCS insurance.

Pros

  • Large number of asset classes and instruments.
  • Tight bid-ask spreads
  • Zero commission on trades.
  • Social and copy trading features.
  • FCA-regulated
  • User friendly platform.

Cons:

  • Limited technical analysis capabilities

67% of retail investor accounts lose money when trading CFDs with this provider.

2. Capital.com – CFD Broker With Competitive Spreads

Capital.com commodity broker

Capital.com is a CFD trading platform that offers all major asset classes, including dozens of ETFs. The broker doesn’t charge commissions and is widely renowned for its competitive low-cost spreads. There are also no fees for deposits and withdrawals.

Capital.com has a proprietary browser-based web platform and apps for mobile devices. You can set up custom watchlists, monitor the market with a built-in news feed, and chart price movements with dozens of technical indicators. You Capital.com account can also be connected to the popular Metatrader4 platform.Capital.com Trading Platform

This broker has an expansive library of tutorials, which is especially handy for newer traders who are just getting started with the whole process of investing in the best investment funds. The educational resources also include a mobile app called “Investmate” that helps you learn on the go.

As a CFD broker, Capital.com does not offer the option of investing in underlying assets. However, for anyone wanting to trade emerging market funds and ETFs or companies using CFDs, Capital.com is a solid choice. Remember, CFDs allow you to go long or short and to use leverage – so they give you great flexibility.

Capital.com is registered with and regulated by the FCA in the UK and CySEC in Cyprus. These are the leading regulatory bodies in each of these countries.

Pros

  • Minimum deposit is just $20.
  • Offers individual companies exposure via ADR
  • Known for competitive spreads.
  • Over 2,700 different instruments to trade.
  • Competitive overnight fees.
  • Regulated by the FCA.

Cons

  •  Limited product portfolio.

71.2% of retail investor accounts lose money when spread betting and/or trading with this provider.

How to Invest in Best Emerging Market Funds UK on eToro

.If you want to invest in one of the funds from the list, you will need to use an online stock broker. For most investors, eToro fits the bill perfectly for the following reasons:

  • Zero commissions when buying and selling financial instruments
  • You can buy shares from just $50 per trade
  • Multiple deposit options including a debit/credit card, UK bank account, or e-wallet
  • Ease of use which suits investors with little or no experience of buying shares online
  • FCA regulated broker

In order to buy shares on eToro platform, follow these steps:

Step 1: Open an Account

Visit eToro website and click on “Join Now”. You will now be asked to fill in your full name, home address, date of birth, and contact details. You’ll also need to choose a username and a strong password.

etoro log in

67% of retail investor accounts lose money when trading CFDs with this provider.

Step 2: Upload ID

On top of the Financial Conduct Authority (FCA), eToro is also regulated by ASIC (Australia) and CySEC (Cyprus). These regulators require you to verify your identity when opening an account. You will need to upload a copy of your UK passport or driver’s license along with a utility bill or bank account statement.

Step 3: Deposit Funds

Now you can make your first deposit using a variety of popular payment methods:

  • Debit Card
  • Credit Card
  • UK Bank Transfer
  • PayPal
  • Skrill
  • Neteller

Deposit Funds

You will need to deposit a minimum of $200 (about £160). Your GBP deposit will be converted to USD (0.5% conversion fee), as this allows you to access both UK and international markets at the click of a button.

Step 4: Buy Shares

Once your account has been funded, you can buy your desired shares by simply typing its ticker symbol in the search box at the top of the screen, and then clicking on the ‘TRADE’ button.

ACWI eToro

67% of retail investor accounts lose money when trading CFDs with this provider.

You will see an order box that asks you to enter the amount that you wish to buy. This is in US dollars and not the number of individual shares. You can buy as little as $50 (£40) worth of shares at eToro, so there is no requirement to buy a whole share of an ETF.

Finally, click on the ‘OPEN TRADE’ button to complete the share investment process!

eToro – Invest in the Best Emerging Market Funds UK – 0% Commission

Emerging market funds are a great way to diversify your portfolio with stocks from around the globe. These funds have a track record of offering strong returns, although they can be riskier than investing in developed markets.

Ready to buy emerging market funds in the UK? Get started today with eToro and pay no commissions when you trade!

67% of retail investor accounts lose money when trading CFDs with this provider.

FAQs

What countries can I invest in with emerging market funds?

Most emerging market funds include assets from China, India, Russia, and Brazil. Many also include stocks from Taiwan, Korea, Chile, Argentina, Mexico, Indonesia, and dozens of other developing nations.

Can I invest in individual emerging market stocks?

You can invest individually in emerging market stocks. However, researching companies in the developing world can be difficult. Emerging market funds make it easy to diversify and invest in top-performing stocks.

What types of emerging market funds are there?

Emerging market funds are typically equity funds, meaning they invest in stocks. However, you can also find emerging market bond funds or even emerging market real estate funds.

Which type of emerging market funds provide better returns - bonds or equity?

The answer here is pretty straightforward - equity funds are significantly better performers. But investors should nonetheless allocate some of their portfolios to bond funds as they will provide greater protection in times of market correction and instability.

Which other factors besides past returns and fund fees should I take into consideration?

From a technical aspect, investors able to use even basic technical analysis tools for timing of purchases (like moving averages and trendlines) could significantly improve their overall return profile. From a fundamental point, with the rise of sustainable development and investing theme, incorporating ESG factors of target fund could be beneficial in the long run, as those funds not compliant with ESG movement have a much greater risk of underperformance going forward.

About Ilija Rajakovic PRO INVESTOR

Ilija Rajakovic is a Serbian-based investor and writer. His main focus areas include finance, trading, and macroeconomy. Ilija holds a Master’s Degree in Investment Banking and is pursuing his Ph.D. with a focus on sustainable finance and development. He is actively managing personal investment portfolios and advising private clients. And has run a website which generated actionable stock market ideas and provided insights into global economic landscape in the past. His economic articles have been publshed in highly respected magazines like NIN and Magazin Biznis.

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