The Vanguard FTSE Emerging Markets ETF (VWO -1.17%) is an exchange-traded fund (ETF) managed by the Vanguard Group, a top asset management firm owned by investors in its funds around the world. The Vanguard FTSE Emerging Markets ETF had more than $110.8 billion in assets under management as of late 2024.
The fund's diversification, relatively low cost, and focus have made it a popular choice with many investors across trading styles and risk tolerance levels. This guide will teach you everything you need to know about the Vanguard FTSE Emerging Markets ETF and how to invest in ETFs for beginners.
Exchange-Traded Fund (ETF)
What is it?
What is the Vanguard FTSE Emerging Markets ETF?
Managed by the Vanguard Group, the Vanguard FTSE Emerging Markets ETF invests in stocks of companies in various emerging markets around the world, including Brazil, Russia, India, Taiwan, China, and South Africa.
Emerging markets are generally characterized as countries changing into full-fledged, developed economies within the global marketplace. There are many hallmarks of emerging markets, but factors such as accelerating economic growth and rapid industrialization are two distinctive features.
The ETF invests in the same companies within the FTSE Emerging Markets All Cap China A Inclusion Index and aims to closely mirror its returns. Given the range of companies and regions represented in the ETF, investors should be aware that an investment in this fund can be accompanied by higher risk and volatility than stock funds invested in more developed regions.
However, the opportunity to invest in still-developing economies can also bring above-average growth over the long run. The Vanguard FTSE Emerging Markets ETF is targeted toward long-term investors. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.
How to buy
How to buy the Vanguard FTSE Emerging Markets ETF?
It's very easy to invest in the Vanguard FTSE Emerging Markets ETF. You can buy shares directly from Vanguard or in your regular brokerage account. Here's the step-by-step guide to buying shares of the ETF.
Step 1: Open your brokerage app
Log in to your brokerage account where you handle your investments. If you don't already have an account (either a regular account or a Vanguard account), it takes just minutes to open one.
Whether you choose to open an account with Vanguard or through a brokerage firm, you'll need to provide information such as your name, date of birth, Social Security number, address, and other personal details. You'll also need to provide information to connect your bank account, such as your routing and bank account numbers.
Take your time to research brokers to find the best one for you and your investment needs.
Step 2: Search for the ETF
Enter the stock ticker VWO or input Vanguard FTSE Emerging Markets ETF into the search bar to bring up the ETF's trading page on your brokerage account or Vanguard account. Make sure you have fully researched the investment and have a strong thesis to buy and keep it in your portfolio for the long run.
While analyzing an ETF will be a bit different from studying a stock, you should consider factors such as its strategy, expense ratio, and investment track record. Then, compare those elements with those of other funds to determine whether this ETF makes sense for your portfolio.
Expense Ratio
Step 3: Decide how many shares to buy
Once you are certain that you want to put some of your hard-earned money into the Vanguard FTSE Emerging Markets ETF, you need to consider how many shares you want to buy. A benefit of investing in an ETF like this is that you can gain instant exposure to a wide range of companies in emerging markets with a single purchase of the ETF's shares.
Rather than buying individual stocks in each of those businesses, you can be instantly diversified as soon as you hit the buy button for the Vanguard FTSE Emerging Markets ETF.
Step 4: Select the order type
On the order page, enter the number of shares or the dollar amount you want to invest in the Vanguard FTSE Emerging Markets ETF. Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay. It's usually recommended to place a market order so your purchase executes right away.
Step 5: Submit your order
Once you've opened and funded your brokerage account, set your investing budget, and are ready to buy shares of the Vanguard FTSE Emerging Markets ETF, the process is straightforward. Confirm the details and submit your buy order.
Step 6: Review your purchase
Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly. Many brokerages allow orders to be placed outside of market hours. Assuming you've placed a market order rather than a limit order, you should see shares of the Vanguard FTSE Emerging Markets ETF added to your account immediately.
Holdings
Holdings of the Vanguard FTSE Emerging Markets ETF
The Vanguard FTSE Emerging Markets ETF holds 5,887 stocks with a median market cap of $23 billion. As of late 2024, 99.46% of these holdings were in emerging markets, with just 0.54% operating in developed markets. A little more than 57% of the stocks in the fund were large-cap companies.
The top 10 holdings of the Vanguard FTSE Emerging Markets ETF include:
- Taiwan Semiconductor Manufacturing (TSM -3.59%): 8.55%
- Tencent Holdings (TCEHY -1.68%): 3.65%
- Alibaba Group (BABA -4.72%): 2.12%
- HDFC Bank (HDB -0.19%): 1.37%
- Meituan (MPNGF -4.49%): 1.36%
- Reliance Industries (NSEI:RELIANCE): 1.16%
- Infosys (INFY -2.67%): 0.88%
- Hon Hai Precision Industry (HNHAF 23.14%): 0.83%
- China Construction Bank (CICHY -1.29%): 0.80%
- PDD Holdings (PDD -1.72%): 0.78%
The Vanguard FTSE Emerging Markets ETF is very well diversified across various emerging markets and sectors within these markets. As of late 2024, the ETF's weighted sector exposures were:
- Technology: 26.37%
- Financials: 21.59%
- Consumer Discretionary: 11.72%
- Industrials: 9.30%
- Basic Materials: 6.24%
- Energy: 5.37%
- Consumer Staples: 5.16%
- Healthcare: 4.08%
- Telecommunications: 3.90%
- Utilities: 3.46%
- Real Estate: 2.79%
Should I invest?
Should I invest in the Vanguard FTSE Emerging Markets ETF?
Choosing any investment for your portfolio is a personal decision. You should make sure you understand your long-term investment goals and risk-tolerance level and have a general knowledge of investing in emerging markets before putting cash in the Vanguard FTSE Emerging Markets ETF.
That said, there are several reasons some long-term investors might want to consider a position in this ETF. For investors who want to gain exposure to various emerging markets without taking on the risk of directly investing in individual companies, this ETF can provide an opportunity for immediate diversification while balancing your investment across numerous key regions.
Economic downturns can be global phenomena. However, having exposure to numerous markets both within and outside the U.S. can provide an opportunity to benefit from strength in certain regions when others are experiencing distress rather than being concentrated in a single sector or industry.
For investors with a healthy risk appetite, there can be significant upside to investing in emerging markets over the long run. These economies tend to experience greater leaps of growth than companies operating against fully developed economic landscapes.
According to the International Monetary Fund, emerging markets and developing economies account for almost 80% of global economic growth, nearly double their share from two decades ago.
For investors who favor slower but steadier returns, investing in an ETF like the Vanguard FTSE Emerging Markets ETF may not be the most ideal option. Although emerging markets can present significant investment opportunities at relatively low valuations, you should also be aware of potential risks that are not as prevalent when investing in developed markets.
For example, political risk, economic risk, and currency dynamics can have a much greater impact on an emerging market investment than on a company operating in a well-developed economic environment.
Dividends
Does the Vanguard FTSE Emerging Markets ETF pay a dividend?
The Vanguard FTSE Emerging Markets ETF paid a dividend that yielded roughly 2.6% as of late 2024, roughly double the amount paid by the average dividend stock on the S&P 500.
Expense ratio
What is the Vanguard FTSE Emerging Markets ETF's expense ratio?
The Vanguard FTSE Emerging Markets ETF has an expense ratio of 0.08%, which is extremely low compared to the average of around 0.5%. For a $10,000 investment in this ETF, the annual fee charged by the firm would come to around $8.
Performance
Historical performance of the Vanguard FTSE Emerging Markets ETF
The Vanguard FTSE Emerging Markets ETF is designed to closely track the return of the FTSE Emerging Markets All Cap China A Inclusion Index. Let's see how the fund has delivered on that objective over the trailing one-, three-, five-, and 10-year periods.
| Return Period | 1-Year | 3-Year | 5-Year | 10-Year |
|---|---|---|---|---|
| VWO (market price) | 15.39% | 0.55% | 4.58% | 3.60% |
| VWO (NAV) | 15.26% | 0.67% | 4.54% | 3.55% |
| Benchmark | 15.25% | 0.74% | 4.71% | 3.62% |
As the chart demonstrates, the fund's returns have roughly matched those of the index it is structured to track.
Related investing options
The bottom line
The Vanguard FTSE Emerging Markets ETF is a leading ETF containing stocks of companies in emerging markets worldwide, such as China, Brazil, Taiwan, and South Africa. It is designed for long-term investors and features a collection of large-cap, mid-cap, and small-cap companies across these and other countries with emerging economies.
For investors with the risk appetite to put cash into these regions, the diversification opportunity that the Vanguard FTSE Emerging Markets ETF presents, its ultra-low expense ratio, and healthy dividend could provide a top option for long-term investors to put cash into the future of emerging economies.
FAQ
Investing in Vanguard FTSE Emerging Markets ETF FAQ
Is VWO ETF a good investment?
The Vanguard FTSE Emerging Markets ETF could be a smart investment for those who already have a diversified portfolio and are looking to build a position in companies representing the world's top emerging markets.
What is the minimum investment for VWO?
Vanguard has varying minimum investment requirements for some of its funds. For the Vanguard FTSE Emerging Markets ETF, the minimum investment required is just $1, so investors can buy whole or fractional shares of the fund.
Is Vanguard Emerging Markets ETF a good investment?
If you are interested in putting cash into emerging markets despite the potential risks, the Vanguard FTSE Emerging Markets ETF could be a good option. It is one of the top funds with exposure to a global cohort of emerging markets and the top companies operating within those regions.
Does VWO pay a dividend?
The Vanguard FTSE Emerging Markets ETF pays a quarterly dividend. It yields around 2.6% at the time of this article.
