Exploring Global Exposure: Canada’s Emerging Markets ETFs

ByDylan Callaghan Published On:

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        Key takeaways

        Diverse Emerging Market Exposure – These ETFs offer access to a broad range of emerging economies, from China and India to Latin America and beyond.

        Equity vs. Fixed Income – While most funds focus on stocks, ZEF.TO provides exposure to emerging market bonds, offering a different risk-return profile.

        Currency & Market Risks – Emerging markets can be volatile due to political risks, currency fluctuations, and economic instability, making ETF selection crucial for risk management.

        One ETF I like way better than the ones on this list.

        I’ve often been told that Canadians have a “hometown bias” regarding Canadian ETF or stock selection.

        This might be because Canada is home to some of the best dividend-paying stocks with the most significant economic moats in the world, like our telecom or pipeline companies. These are excellent companies that have historically provided solid total returns.

        However, diversification is still vital. So many Canadians either stuff their portfolios with local stocks or diversify into the United States via an S&P 500 ETF. That’s a good start and a solid methodology, but there’s a whole world out there outside of North America.

        Plus, exchange-traded funds make it easy to invest in these other markets, much easier than trying to find stocks on your own. This wouldn’t have been the case 15-20 years ago.

        Plus, investors looking to gain exposure outside of North America can do so by buying ETFs that trade on the Toronto Stock Exchange and in Canadian Dollars. No currency exchange is necessary. These are diverse portfolios wrapped up in an easy package that also comes with very reasonable expenses.

        A warning before we start: international ETFs carry more risk

        These low-cost ETFs are great if your investment objective is to gain more exposure to international markets. However, you must understand they do carry additional risks.

        Global markets outside of North America are relatively unknown to the average retail investor and carry some added risk. After all, emerging markets are not as established as the major exchanges here in Canada, the United States and Europe. As a result, many are hesitant to invest.

        Fortunately for you, some great emerging market ETFs here in Canada provide broad exposure to some markets that are definitely not easy to get exposure to if you’re picking individual stocks. Some examples would be China, India, Russia, and Latin America.

        We are still relatively limited in options. However, I’m going to go over some of the best available today. Not only will I highlight equity ETFs, but also fixed income options.

        The top emerging market ETFs to buy in Canada

        Broad all-cap emerging market exposure

        FTSE Emerging Markets All Cap Index ETF (TSE: VEE)

        VEE tracks the FTSE Emerging Markets All Cap Index, providing exposure to large-, mid-, and small-cap companies across emerging economies. It offers a well-diversified approach, capturing both established and high-growth companies within developing markets.

        • Broad Market Representation – Covers large, mid, and small caps, giving investors full market exposure to emerging economies.
        • Strong Diversification – Includes holdings across multiple sectors, reducing country-specific risk.
        • Lower Cost Structure – Compared to some actively managed emerging market funds, VEE offers cost-efficient exposure.
        • Growth Potential – Emerging markets continue to drive global economic growth, particularly in Asia and Latin America.
        • Canadian-Friendly Structure – Being CAD-hedged removes the need for U.S. dollar conversions.
        • China’s Economic Shifts – Policy changes and economic reopening will impact emerging market growth.
        • India’s Expanding Tech & Consumer Base – India’s booming middle class is a major driver of growth.
        • Commodities & Inflation – Many emerging markets rely on commodity exports, which can be influenced by global inflation trends.
        • Geopolitical Tensions – Trade policies and international relations could affect emerging market stability.
        • Currency Volatility – Emerging market currencies can be highly unpredictable.
        • Regulatory & Political Uncertainty – Government interventions may impact companies and market stability.
        • Market Liquidity – Smaller-cap stocks may have less liquidity, increasing volatility.

        Low-cost emerging market ETF

        iShares Core MSCI Emerging Markets ETF (TSE:XEC)

        XEC tracks the MSCI Emerging Markets IMI Index, covering large, mid, and small caps across 24 emerging economies. It’s a popular low-cost option for Canadian investors looking for passive exposure.

        • MSCI Index Exposure – Tracks a well-established benchmark for emerging markets.
        • Low Expense Ratio – One of the lowest-cost options for Canadian investors seeking emerging market exposure.
        • High Liquidity – The ETF structure allows for efficient trading and rebalancing.
        • Sector Diversification – Exposure to technology, financials, and consumer discretionary sectors.
        • Long-Term Growth Potential – Captures the economic expansion of emerging markets over time.
        • Rising Middle-Class Consumption – Growth in disposable income drives consumer and tech sectors.
        • Emerging Market Technology Adoption – Increasing internet penetration is fueling e-commerce and fintech.
        • Infrastructure Development – Government investments in transport and energy are boosting key sectors.
        • Shifts in Global Supply Chains – Many companies are diversifying manufacturing bases beyond China.
        • China’s Market Influence – A slowdown in China could impact overall emerging market performance.
        • Interest Rate Sensitivity – Rising global interest rates may put pressure on emerging market currencies.
        • Corporate Governance Issues – Some emerging markets have weaker regulatory frameworks.

        Balanced emerging market exposure with currency hedging options

        BMO MSCI Emerging Markets Index ETF (TSE:ZEM)

        ZEM tracks the MSCI Emerging Markets Index, providing diversified exposure to major developing economies. It includes an option for currency hedging, reducing FX risk for Canadian investors.

        • MSCI Emerging Markets Exposure – Offers broad exposure to key emerging economies.
        • Currency Hedging Availability – Investors can opt for a hedged or unhedged version to manage FX risks.
        • Strong Sector Representation – Includes top emerging market sectors like technology and financials.
        • Growth-Oriented Holdings – Focuses on companies with strong long-term growth potential.
        • BMO’s Institutional Strength – Backed by one of Canada’s leading financial institutions.
        • Tech & E-Commerce Boom – Emerging markets are home to fast-growing digital economies.
        • Shift Away from U.S. Dependence – More economies are focusing on regional trade agreements.
        • Climate & ESG Investing – Sustainability efforts may impact key industries in emerging markets.
        • Volatility from Global Rate Hikes – Central bank policies in the U.S. and Europe may influence capital flows.
        • Political Uncertainty – Changes in government policies can impact market stability.
        • Liquidity Concerns – Some emerging markets may have less liquidity, leading to price swings.
        • Dependence on Global Growth – Emerging markets rely on strong global economic conditions for expansion.

        Fixed income exposure to emerging markets

        BMO Emerging Market Bond Hedged to CAD Index ETF (ZEF.TO)

        ZEF holds sovereign bonds from emerging economies, providing income while reducing currency risk via CAD hedging.

        • Stable Yield Source – Offers higher yields than developed market bonds.
        • Lower Correlation to Equities – Adds diversification to a stock-heavy portfolio.
        • CAD-Hedged for Stability – Reduces volatility from currency fluctuations.
        • Exposure to High-Growth Economies – Includes bonds from Brazil, Mexico, India, and Indonesia.
        • Interest Rate Movements – Rising rates impact bond prices and yields.
        • Emerging Market Debt Levels – Countries with high debt face refinancing risks.
        • Default Risk – Some emerging market bonds carry higher credit risk.
        • Liquidity Constraints – Emerging market debt markets can be less liquid.

        Targeted exposure to India’s growth

        BMO MSCI India Selection Equity Index ETF (TSE:ZID)

        ZID invests in India’s largest companies, capitalizing on the country’s rapid economic expansion.

        • India’s Strong GDP Growth – Forecast to be one of the fastest-growing economies globally.
        • Tech & Consumer Sectors Thriving – Reliance on digitalization fuels market expansion.
        • Favorable Demographics – A young population supports long-term economic development.
        • India’s Digital Boom – Rapid mobile and internet adoption.
        • Manufacturing Growth – India aims to become a global production hub.
        • Political & Policy Risks – Regulatory shifts can impact growth.
        • High Valuations – Indian stocks may be expensive relative to other markets.

        Focused exposure to China’s top stocks

        iShares China Index ETF (XCH.TO)

        XCH provides exposure to China’s largest and most influential companies, including tech, financials, and consumer sectors.

        • China’s Economic Recovery – Post-pandemic recovery fuels market performance.
        • Tech & Consumer Sector Leadership – Alibaba, Tencent, and JD.com drive returns.
        • Government Policy Support – Increased focus on economic stability benefits investors.
        • Chinese Regulations – Government policies significantly impact market sentiment.
        • Global Trade Tensions – U.S.-China relations influence investor confidence.
        • Geopolitical Uncertainty – Trade conflicts and regulatory risks remain concerns.
        • Slower Growth Projections – Economic slowdown could impact corporate earnings.

        Overall, these Canadian emerging market ETFs provide excellent exposure

        All of these funds give you great exposure to markets outside of North America. Some of them are broad-based, while others focus on individual countries. Investors looking to take advantage of the growth in external markets can do so relatively quickly with any of these funds, just make sure you know the differences.

        Remember that emerging market ETFs are prone to external regulatory and political risks you may not see in more established markets. We’ve witnessed this right now with China, and these risks could get much worse if China takes a more aggressive stance with Taiwan.

        I wouldn’t necessarily label these emerging market ETFs as “high risk.” Still, investors assume much more risk with these emerging market ETFs than they would invest in, say, a TSX 60 ETF.

        That makes it extra important for investors to be a little careful here. The fund documents — including the fund’s prospectus, its trading strategy, and other metrics — will have many of the answers investors seek.

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