David Swensen classified emerging markets equity as one of the core asset classes in his book, Unconventional Success. It is easy to see why: emerging markets have low correlation with other asset classes and provide valuable diversification benefits while lowering the overall volatility of the portfolio.
If you are interested in adding emerging markets to your portfolio, you have the following ETF options:
- iShares MSCI Emerging Markets Index Fund (EEM) has been around for a few years and provides broad exposure to South Korea, Taiwan, Mexico, South Africa and the BRIC economies of Brazil, Russia, India and China. The MER at 0.75% is steep by ETF standards.
- Vanguard Emerging Markets ETF (VWO) tracks the MSCI Emerging Markets Select Index and is a recent competitor to EEM. The composition is similar but not the same as EEM but the fund is far cheaper with a MER of 0.30%.
- BLDRS Emerging Market 50 ADR Index Fund (ADRE) tracks the performance of a capitalization-weighted index of 50 emerging market based Depository Receipts. MER is 0.30%.
In my opinion, VWO is the better option because it is at least equally diversified and cheaper than the rest.