Investors Love This Under the Radar Emerging Markets ETF

The iShares MSCI Emerging Markets ex China ETF (EMXC) has quietly become one of the largest emerging markets exchange-traded funds.

This year, investors have pushed $3.8 billion into the ETF, the largest inflows for any emerging markets ETF by far.

That’s taken the fund’s assets under management to $12.5 billion, making it the fourth-largest U.S.-listed EM exchange-traded fund after the $74 billion iShares Core MSCI Emerging Markets ETF (IEMG), the $73.7 billion Vanguard FTSE Emerging Markets ETF (VWO) and the $16.6 billion iShares MSCI Emerging Markets ETF (EEM).  

EMXC’s growth suggests that investors are interested in putting money to work in emerging markets stocks, but they don’t want to deal with the risks of China.  

EMXC tracks the MSCI Emerging Markets ex China Index, giving it a much different look than broader EM funds like IEMG and VWO.

For instance, IEMG has 23% of its portfolio allocated to China, while EMXC has no positions in Chinese stocks.

Instead, EMXC’s largest geography is India, with a 25% weighting, followed by Taiwan, with 23%, and Korea, with 16%.

For IEMG, India, Taiwan and Korea have smaller weightings of 19%, 18%, and 22%, respectively.

EMXC Growing as China Faces Economic Downturn

EMXC’s growing popularity reflects the angst investors have about China. Once a darling among investors, China is now grappling with an economic downturn, a declining population, and geopolitical tensions with the West.  

A perception that the Chinese government is more hostile to big businesses has also weighed on sentiment.

There is the possibility that investors are abandoning China at precisely the wrong moment.  With sentiment so negative, perhaps Chinese stocks are at or close to their lows.  

Only time will tell.  

But even if that’s the case, investors need to be able to sleep comfortably. And if buying emerging markets without exposure to China helps them do that, then there’s nothing wrong with that.