7 Best Emerging Market ETFs in Canada (Sep 2022)

Want to diversify your portfolio and include emerging markets as a sleeve in your overall portfolio?

Emerging markets make up over 80 percent of the world’s total population and are responsible for almost 80 percent of global GDP growth.

We will cover the best emerging market ETFs in Canada below and discuss some of their features. 

What to Look for in a Good Emerging Market ETF

There are several things to consider before investing in an emerging market ETF.

Geographical Allocation

How an emerging markets ETF is allocated between countries is extremely important to consider. Make sure that the ETF you are considering isn’t too heavily concentrated in any one specific country.

Fees

Unless a strategy is actively managed and has an excellent track record of active management, it’s best to look for ETFs that cost as little in fees as possible. This is especially true for passive funds.

Inception Date

The length of the ETF’s performance track record is important because it allows you to judge performance through different market environments. A longer track record is preferred over a shorter one. 

Assets Under Management

An ETF with a large level of assets under management is desirable. ETFs that have too few assets are at risk of closing down early in the future due to a lack of profitability.

Best Emerging Markets ETFs in Canada

1. Vanguard FTSE Emerging Markets All Cap Index ETF

Vanguard Logo
  • Ticker: VEE.TO
  • Currency: CAD
  • Inception Date: November 30, 2011
  • Assets under Management: $1.5 Billion
  • Management Expense Ratio: 0.24%
  • Listed on: Toronto Stock Exchange
  • Dividend Yield: 2.70%
  • Approximate Holdings: 5400
  • Management Style: Passive
  • Risk Rating: Medium
  • Distribution Frequency: Quarterly
  • Stock Price: $31.16
  • YTD Return: -15.2%

Vanguard offers a great emerging markets ETF here in Canada. VEE invests in emerging market stocks of all market capitalizations (companies that are big, medium-sized, and small). It is a passive strategy that tracks the FTSE Emerging Markets All Cap China A Inclusion Index.

VEE is fairly concentrated in Chinese companies, with over a 30% geographical allocation to China. Other countries with a sizable allocation include India and Taiwan. 

The ETF has a long performance track record and has amassed a very high level of assets under management. With regards to its MER, VEE comes with one of the lowest fees for a passive, emerging markets ETF on the Canadian shelf.

The ETF pays a decent yield and pays distributions to investors on a quarterly basis. VEE has over 5,000 holdings, making it extremely well diversified (and likely over-diversified). The medium risk rating of the fund is likely understated, as most emerging market investments are at least medium-to-high risk.

As a low-cost option with a long track record and a large AUM number, VEE is a great emerging markets ETF to consider for your portfolio.

2. CIBC Emerging Markets Equity Index ETF

CIBC Logo
  • Ticker: CEMI.TO
  • Currency: CAD
  • Inception Date: September 16, 2021
  • Assets under Management: $18.36 Million
  • Management Expense Ratio: 0.22%
  • Listed on: Toronto Stock Exchange
  • Dividend Yield: N/A
  • Approximate Holdings: 1500
  • Management Style: Passive
  • Risk Rating: Medium-to-High
  • Distribution Frequency: Annually
  • Stock Price: $15.84
  • YTD Return: -16.29%

CIBC’s emerging markets ETF is another low-cost option to consider for your portfolio. CEMI focuses on emerging countries in Asia, Latin America, Europe, Africa, and the Middle East. It is another passive strategy, this time tracking the Morningstar Emerging Markets Target Market Exposure Index.

The ETF has over 30% of its holdings in China. The next three largest countries are Taiwan, India, and South Korea.

CEMI has a very short performance track record, with its inception date in 2021. In terms of AUM, it is a very small ETF, which puts it at risk of closing down in the near future if it can’t attract additional capital.

From a fee perspective, it is one of the most inexpensive emerging markets ETFs available to Canadians. CEMI has a great dividend yield but only pays distributions on an annual basis. With around 1,500 underlying holdings, it is extremely well diversified.

Its medium-to-high risk rating is fairly standard for an emerging market fund. 

We recommend waiting on a performance track record to develop as well as for some AUM growth before investing in CEMI.

3. Horizons Emerging Markets Equity Index ETF

horizons logo
  • Ticker: HXEM.TO
  • Currency: CAD
  • Inception Date: August 5, 2020
  • Assets under Management: $72.72 Million
  • Management Expense Ratio: 0.25%
  • Listed on: Toronto Stock Exchange
  • Dividend Yield: N/A
  • Approximate Holdings: Not Disclosed, Uses an Index Swap
  • Management Style: Passive
  • Risk Rating: Medium
  • Distribution Frequency: None
  • Stock Price: $29.31
  • YTD Return: -18.21%

Horizons’ HXEM ETF is an emerging markets ETF choice that is more tax efficient for non-registered accounts. HXEM, like most Horizons total return ETFs, uses a swap on an emerging markets index to generate returns (and does not hold the underlying stocks). 

The ETF passively tracks the Horizons Emerging Markets Futures Roll Index (Total Return). It invests mainly in large-cap and mid-cap securities in emerging markets.

HXEM has a very short performance track record and is a small ETF in terms of assets under management. From a fee perspective, it is inexpensive relative to most emerging markets ETFs in Canada.

Since the ETF uses a swap strategy, it aims to not pay any distributions to investors. This generally improves the tax efficiency of an investment, especially when considering foreign dividends. Investors pay an additional swap fee for this ETF structure.

HXEM’s medium-risk rating is likely understated and should be closer to a medium-high-risk rating. 

If you are looking for an emerging markets ETF to add to your non-registered portfolio, HXEM is a good option from a tax-efficiency perspective.

4. BMO MSCI Emerging Markets Index ETF

BMO
  • Ticker: ZEM.TO
  • Currency: CAD
  • Inception Date: October 20, 2009
  • Assets under Management: $1.18 Billion
  • Management Expense Ratio: 0.27%
  • Listed on: Toronto Stock Exchange
  • Dividend Yield: 3.01%
  • Approximate Holdings: 775
  • Management Style: Passive
  • Risk Rating: Medium
  • Distribution Frequency: Annually
  • Stock Price: $18.23
  • YTD Return: -18.28%

BMO has an emerging markets ETF on its product shelf here in Canada. ZEM has the ability to hold other underlying ETFs but mainly follows a passive strategy. It follows the MSCI Emerging Markets Index.

The ETF has an allocation of over 30% to China, with other large allocations to Taiwan, India, and South Korea. ZEM largely focuses on large-cap and mid-cap stocks across 26 emerging market countries.

ZEM has a very long performance track record and has an enormous AUM level. From a fee perspective, it is also priced on the inexpensive side of emerging markets ETFs in Canada.

The ETF offers a good dividend yield with distributions being paid to investors on an annual basis. With over 750 underlying holdings, the ETF is very well diversified. 

ZEM’s risk rating is likely understated and should be closer to medium-high.

If you are looking for a low-cost ETF with great overall features, BMO’s ZEM is an excellent option.

5. iShares ESG Aware MSCI Emerging Markets Index ETF

ishares logo
  • Ticker: XSEM.TO
  • Currency: CAD
  • Inception Date: March 18, 2019
  • Assets under Management: $35.57 Million
  • Management Expense Ratio: 0.36%
  • Listed on: Toronto Stock Exchange
  • Dividend Yield: 3.24%
  • Approximate Holdings: 320
  • Management Style: Passive
  • Risk Rating: Medium
  • Distribution Frequency: Semi-Annually
  • Stock Price: $17.17
  • YTD Return: -19.81%

Blackrock’s iShares lineup offers an interesting emerging markets strategy in Canada. XSEM is an ETF that invests in emerging markets while also adhering to ESG (environment, social, and government) principles.

The strategy invests in mid-cap and large-cap stocks with a passive approach. It tracks the MSCI Emerging Markets Extended ESG Focus Index. XSEM has a weight of over 30% to China as well as significant weights toward Taiwan, India, and South Korea.

XSEM has a short performance track record and is a small ETF in terms of assets under management. From a fee perspective, XSEM has a fairly inexpensive MER. The ETF offers a low yield with distributions being paid to investors semi-annually. 

XSEM has fewer holdings than most ETFs on our list but is still more than adequately diversified. The ETF’s risk rating should also likely be closer to medium-high.

If you are looking for an emerging markets ETF that is aligned with responsible investing, XSEM is a good option to consider.

6. Invesco S&P Emerging Markets Low Volatility Index ETF

Invesco logo
  • Ticker: ELV.TO
  • Currency: CAD
  • Inception Date: July 11, 2014
  • Assets under Management: $15.18 Million
  • Management Expense Ratio: 0.35%
  • Listed on: Toronto Stock Exchange
  • Dividend Yield: 4.54%
  • Approximate Holdings: 200
  • Management Style: Passive
  • Risk Rating: Medium
  • Distribution Frequency: Annually
  • Stock Price: $18.42
  • YTD Return: -2.63%

Invesco offers an emerging markets ETF in Canada designed to reduce overall volatility. ELV is a passive strategy that tracks the S&P BMI Emerging Markets Low Volatility Index. The focus of the strategy is on large-cap and mid-cap stocks.

The ETF has over 30% exposure to Taiwan, with other large allocations towards Saudi Arabia and China. Relative to most ETFs on our list, ELV has a significantly lower allocation to Chinese equities.

ELV has a long performance track record and is a very small ETF. Its asset size does put it at risk of closing in the future if it does not manage to attract more assets.

From a fee perspective, it comes with a fairly average MER for a passive emerging markets strategy. With roughly 200 holdings, it is still exceptionally well diversified across underlying positions.

ELV offers a great dividend yield with distributions being paid out on an annual basis.

ELV is a good, lower-volatility option to consider in the future, especially if it manages to attract more assets.

7. AGFiQ Emerging Markets Equity ETF

AGF Logo
  • Ticker: QEM.TO
  • Currency: CAD
  • Inception Date: January 30, 2017
  • Assets under Management: $56.1 Million
  • Management Expense Ratio: 0.45%
  • Listed on: Toronto Stock Exchange
  • Dividend Yield: 3.28%
  • Approximate Holdings: 115
  • Management Style: Quantitative/Active
  • Risk Rating: Medium
  • Distribution Frequency: Annually
  • Stock Price: $22.31
  • YTD Return: -20.82%

AGF, a large investment manager in Canada, offers an interesting emerging markets ETF. Unlike most ETFs on our list, the strategy is quantitatively managed based on several factors. This contrasts with most of the passive strategies on our list.

The ETF has an allocation of over 30% to China, with Taiwan and South Korea also carrying heavy weighting. 

QEM has a short performance track record and is a fairly small ETF in terms of assets. From a fee perspective, it is relatively more expensive than the other ETFs on our list. The strategy does benefit from quantitative and active management, unlike the other ETFs.

QEM offers a good dividend and pays distributions to investors on an annual basis. It is fairly well diversified, with over 100 underlying stocks. From a risk rating perspective, it should likely be labelled as a medium-high risk strategy.

If you are looking for more portfolio manager involvement within your emerging markets ETF, QEM is a great option to consider.

Should you Invest in Emerging Markets ETFs?

Adding emerging markets exposure to your portfolio can help to diversify your investments and potentially increase returns over a long period of time. 

Doing research on emerging market stocks or bonds can be extremely difficult to do, especially as an investor in Canada. Canadian retail investors are far detached from emerging market companies and usually have very limited expertise and visibility into operations.

Using an emerging markets ETF to properly diversify your exposure is an excellent approach to investing in these regions of the world.

How to Buy the Best Emerging Market ETFs in Canada

The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:

Readers Choice
Qtrade
Qtrade
  • 105 commission-free ETFs to buy and sell
  • Excellent customer service
  • Top-notch market research tools
  • Easy-to-use and stable platform 
Low Fees
Wealthsimple Trade
Wealthsimple Trade
  • Stock and ETF buys and sells have $0 trading fees
  • Desktop and mobile trading
  • Reputable fintech company
  • Fractional shares available
Well-Rounded
Questrade
Questrade
  • ETF buys have $0 trading fees
  • Excellent market research tools
  • Most types of registered accounts available

To learn more, check out my full breakdown of the best trading platforms in Canada.

Conclusion

Adding emerging markets exposure to your portfolio is usually best done through an ETF as a retail investor. 

The emerging markets ETFs in Canada are diverse and allow you to choose options based on your personal goals and preferences. 

Before investing in a relatively higher-risk area of the stock market, make sure that you have properly assessed your goals and objectives

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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6 thoughts on “7 Best Emerging Market ETFs in Canada (Sep 2022)”

  1. Hi, just wondering about Wealthsimple Trade, as you mentioned they have desktop capability. I have not found that information on their website, so I am curious as to where this can be found.

    Reply

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