How Emerging Is Your Emerging Market ETF?

by on May 5, 2014 | ETFs Mentioned:

Emerging market investing has been a major theme over the last decade or so, as developed economies settle into a more stable pattern and investors look elsewhere for growth in their portfolios. But defining an emerging market, as well as when a country transfers from frontier to emerging, or emerging to developed, has always been somewhat subjective. Though most analysts agree on which country falls into which category, there are examples of “border” nations like Taiwan and South Korea, which many argue are developed (we are inclined to agree).

To help put your emerging market exposure in perspective, we present a comparison of emerging markets by key metrics that help define a country’s progression and economic prowess. Note that we have added several developed economies (like the U.S. and Germany) as well as frontier markets to give investors a point of reference:

Country Per Capita GDP Life Expectancy Literacy Rate GDP Growth Rate Government Type
USA $52,800 79.56 99% 1.6% Federal Republic/Democracy
Germany $39,500 80.44 99% 0.5% Federal Republic
Brazil $12,100 73.28 90.4% 2.5% Federal Republic
Russia $18,100 70.16 99.7% 1.3% Federation
India $4,000 67.8 62.8% 4.7% Federal Republic
China $9,800 75.15 95.1% 7.6% Communist State
Malaysia $17,500 74.52 93.1% 4.7% Constitutional Monarchy
Indonesia $5,200 72.17 92.8% 5.3% Republic
South Korea $33,200 79.8 97.9% 2.8% Republic
Taiwan $39,600 79.84 96.1% 2.2% Multiparty Democracy
Thailand $9,900 74.18 93.5% 3.1% Constitutional Monarchy
Mexico $15,600 75.43 93.5% 1.2% Federal Republic
Qatar $102,100 78.38 96.3% 5.5% Emirate
Kenya $1,800 63.52 87.4% 5.1% Republic
Pakistan $3,100 67.05 54.9% 3.6% Federal Republic
Chile $19,100 78.44 98.6% 4.4% Republic

The Bottom Line

We often stress the importance of looking under the hood of your ETFs to make sure you fully understand the product. Part of this process will involve comprehending your country exposure, especially when it comes to emerging markets. Are you really investing in growing economies, or does your fund have a slant towards those that are watching growth taper? It is an important question to ask and answer to ensure that you are making the correct decision for your portfolio.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.