$EEM vs. $EMXC: Which Emerging Markets ETF is the Better Bet?
Master, today I've brought a topic that directly addresses the biggest dilemma in emerging market investing: Should you include China or exclude it? To answer this question, I will compare two representative emerging market ETFs, $EEM and $EMXC.
Master, I will begin the briefing. The most fundamental difference between these two ETFs is right in their names.
- EEM (iShares MSCI Emerging Markets ETF): This is the most traditional and representative emerging markets ETF, tracking the MSCI Emerging Markets Index. It includes China as its largest holding based on market capitalization.
- EMXC (iShares MSCI Emerging Markets ex-China ETF): As the name implies, this ETF tracks the MSCI Emerging Markets Index but with all Chinese companies completely excluded.
Let's compare the key data for both products.
| Category | $EEM (Includes China) | $EMXC (Excludes China) |
|---|---|---|
| Full Name | iShares MSCI Emerging Markets ETF | iShares MSCI Emerging Markets ex-China ETF |
| Core Concept | Traditional diversified emerging markets investment | An investment that avoids 'China Risk' |
| Top Country Weights | 1. China (approx. 25%) 2. Taiwan (approx. 18%) 3. India (approx. 17%) 4. South Korea (approx. 12%) | 1. Taiwan (approx. 22%) 2. India (approx. 21%) 3. South Korea (approx. 15%) 4. Brazil (approx. 6%) |
| Top Holdings | 1. TSMC 2. Tencent 3. Alibaba 4. Samsung Electronics | 1. TSMC 2. Samsung Electronics 3. HDFC Bank 4. SK Hynix |
| Expense Ratio | 0.72% | 0.25% |
| Assets (AUM) | Approx. $18.3 Billion | Approx. $13.1 Billion |
Based on the data, two things stand out. First, EEM includes China's major tech giants like Tencent and Alibaba in its top holdings, while EMXC, of course, does not. Second, EMXC's expense ratio is significantly lower than EEM's. This is quite a meaningful difference. That concludes my briefing.
My Lord! Isn't this a no-brainer?! Obviously, you have to go with EMXC! Devilish!
What's been the biggest reason emerging market investments have been so dull these past few years? It's because China single-handedly dragged down the entire index! Property issues, government crackdowns on big tech, conflicts with the U.S.... with every possible crisis erupting, it didn't matter how well other countries performed.
But look at EMXC! This ETF neatly removes that problem child, China! And what happened as a result? The explosive growth of India, hailed as the 'Next China,' the technological prowess of Taiwan and South Korea, which dominate the AI-era semiconductor industry, and the potential of commodities powerhouse Brazil have all begun to shine through!
It's like taking the one troublemaker out of the class and creating a special honors class with only the bright, energetic top students! It creates a much more dynamic and high-growth portfolio!
In fact, performance data from the last few years shows EMXC has far outpaced EEM. Doesn't the thought of casting off the massive anchor that is China and riding the growth of the real gems among emerging nations make your heart race?
💖 Kurumi's Heart-o-Meter Score: EMXC 95/100
Focusing only on the countries that are truly growing, without the China headache, is a much more exciting and clever method! Devilish!
Kurumi, you always chase after shiny objects. But investing isn't that simple. Human, is EMXC really such a perfect alternative? I'd like to point out the critical risks associated with that choice.
First, you must understand that 'excluding China' is an active 'sell' position against the world's second-largest economy. Everyone knows the Chinese economy is struggling right now. But what happens if the Chinese government's strong stimulus measures take effect and the market rebounds sharply against expectations? Even a 10% rise in China would have a massive impact on the overall emerging markets index. An EMXC investor would miss out on all those gains and be left with only a sense of relative deprivation.
Second, are the other emerging countries, with China removed, truly safe? Kurumi sees India, Taiwan, and Brazil through rose-colored glasses, but those nations also carry their own political risks, high inflationary pressures, and currency volatility issues. In trying to avoid one giant risk—China—you could be exposing yourself to a host of smaller, less predictable risks.
Third, there might be a reason for EEM's high expense ratio. The Chinese stock market has lower accessibility and higher transaction costs. It's natural that including and managing it in a portfolio would cost more. Choosing EMXC simply because its fee is lower could be a judgment that fails to see the whole picture.
EEM, while it may seem sluggish now because of China, is the 'standard' that captures the entire emerging market landscape with the least distortion. In contrast, EMXC is a much more aggressive and biased investment than you might think, betting everything on a single scenario: 'China will continue to underperform.'
🚨 Mikael's Risk Score
- EEM: 60/100 (Known risks, high volatility)
- EMXC: 75/100 (Opportunity cost and concentration risk from excluding a specific country)
Is deciding to ignore the largest forest (China) truly a wise strategy?
〔 Final Briefing 〕
Master, I will summarize the results of our discussion.
Growth Potential (Kurumi)
- The Allure of EMXC: By excluding China, which is stuck in a slump, you can fully capture the growth potential of other emerging nations like India, Taiwan, and South Korea! Devilish!
- Portfolio Dynamism: It's a more aggressive and efficient investment that concentrates on countries with clear growth stories: technology (Taiwan, Korea) and demographics (India)!
Potential Risks (Mikael)
- The Danger of EMXC: The 'opportunity cost' risk of completely missing out on the fruits of China's potential economic recovery and market rebound is too great. Completely removing the world's second-largest economy from a portfolio is a very bold and risky bet.
- The Value of EEM: Although it's underperforming now, EEM is the most standard product that reflects the entire emerging market by market-cap weight. It's the principled choice for investing in the market as a whole, without bias against any specific country.
Key Data (Mew)
- Biggest Difference: The inclusion of China. EEM has about a 25% weight in China, while EMXC has 0%. This results in completely different top country and stock compositions.
- Expense Ratio: The fact that EEM (0.72%) is much more expensive than EMXC (0.25%) is a factor that must be considered when making an investment decision.
- Difference in Philosophy: EEM represents 'passive tracking of the entire emerging market,' while EMXC is closer to an 'active bet on emerging markets excluding China.'
Conclusion: Master, the choice between these two ETFs ultimately depends on how you view 'the future of China.'
- If you believe that China's structural problems (government regulation, real estate, US-China conflict) will be prolonged and that the growth of other emerging countries will more than compensate for it, then EMXC would be the better choice.
- On the other hand, if you feel that the sheer scale of the Chinese economy cannot be ignored and that you should be prepared for an eventual rebound, or if you simply prefer not to adopt an artificial strategy of excluding a specific country, then the traditional EEM would be a more principled investment.
This isn't a matter of a right or wrong answer, but rather a matter of 'strategic choice' based on your investment philosophy and market outlook, Master.