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How do I Choose the Best Emerging Markets Index Fund?

By A. Leverkuhn
Updated May 17, 2024
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Choosing the best emerging markets index fund means observing all of the different details about what you can do with this kind of fund, including calculations of the costs, taxes and projected yields, as well as information about how this fund competes with others and what it is likely to do in the future. Those who are seeking emerging markets index funds are looking at some more broadly diversified, and often relatively stable options for making a play on the economic growth of promising countries and regions of the world. Some financial experts recommend adding emerging markets investments to a portfolio for a variety of reasons.

Some of the basics involved in emerging markets index funds revolve around the cost of these types of funds. Costs for index funds tend to be much lower than those for other kinds of mutual funds called “actively managed funds,” which include more buying and selling of individual stocks. Investors can look at the “expense ratio” as well as any other applicable fees and commissions to see how much it will cost them to get into an emerging markets index fund. Investors can also look at their own personal tax situation to see what kind of impact their financial gains will have on their annual filing.

It’s important to look at the market context for emerging markets index fund choices. For example, lots of investors today are making bets on the projected outcome for the BRIC countries, Brazil, Russia, India, and China, all of which are considered promising national economies in the current world market. It’s also important to consider what kind of stocks fund managers pick for an emerging markets index fund. Many of these funds tend to favor “large cap” stocks, which are often the biggest and most established company stocks for the specific emerging market, but others are more likely to include the stocks of smaller and more untested companies where there may be more risk, but also more growth potential.

Another aspect to evaluate for emerging markets index funds is whether these funds have a lot of access to U.S. exchanges. This is important to some investors, but less so to others. Whether or not you want your emerging market funds to be tied to U.S. exchanges has a lot to do with your overall trading strategy, and how you want to trade these financial products. Investors can also look at “market access” in the form of a fund setup, where some of the emerging markets index funds offered by the top firms are sold as “exchange traded funds” or ETFs. These choices can sometimes make tracking and trading easier.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

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