South Korea Powers Surge in Emerging Markets ETF Flows
- Investors are taking notice of emerging markets ETFs.
- South Korea has contributed 3.6 percentage points to IEMG’s nearly 16% return.
This year’s rally in international equities has extended to emerging markets, and ETF investors are taking notice.
The iShares Core MSCI Emerging Markets ETF (IEMG) has pulled in $7.4 billion in inflows year to date, making it the 12th most popular ETF overall and the second most popular international equity ETF after the Vanguard Total International Stock Index Fund ETF (VXUS), which has brought in $7.8 billion.
IEMG & VWO Gain Investor Attention
IEMG is the largest emerging markets ETF, with $98 billion in assets under management, just ahead of the Vanguard Emerging Markets Stock Index Fund ETF (VWO), which has $92.3 billion and $2.4 billion in 2025 inflows.
Performance-wise, IEMG is up 15.6% so far this year, outpacing VWO’s 12.7% gain but trailing the broader VXUS, which is up 17.5%.
The difference between IEMG and VWO comes down to index construction. IEMG tracks the MSCI Emerging Markets Investable Market Index, which includes large-, mid- and small-cap stocks. VWO, by contrast, tracks the FTSE Emerging Markets All Cap China A Inclusion Index.
One key distinction is the fact that MSCI classifies South Korea as an emerging market, while FTSE classifies it as a developed market. That means South Korea has an 11% weight in IEMG but no presence in VWO.
That difference has been pivotal this year. South Korea has contributed 3.6 percentage points to IEMG’s nearly 16% return, accounting for nearly a quarter of the fund’s gains. Only China, with a 4.3 percentage point contribution, has had a bigger impact.
The iShares MSCI South Korea ETF (EWY) is up 38% year to date, making South Korea one of the best-performing markets in 2025. But the impact of South Korea cuts both ways; last year, EWY dropped more than 20%, dragging on IEMG's performance.
Over longer periods, the differences between IEMG and VWO tend to even out. Over the past five years, both funds are up just under 33%. Over the past decade, IEMG has gained 69.6%, slightly ahead of VWO’s 67.6%.
In short, both ETFs offer low-cost, broad-based exposure to emerging markets. IEMG charges an expense ratio of 0.09%, while VWO edges it out slightly at 0.07%.
