There's an ETF For That? Emerging Markets, Ex-China

Columbia EM Core ex-China ETF

XCEM

+0.52%

XCEM tracks the Beta Thematic Emerging Markets ex-China Index. This is a market-cap-weighted benchmark covering up to 700 companies, primarily large- and mid-cap stocks, with explicit exclusions for companies listed or domiciled in China and Hong Kong.

From a cost perspective, XCEM undercuts the largest competitor in the category with a 0.16% expense ratio. It has also shown modest positive tracking results over longer horizons. Over the past 10 years, the ETF has delivered an annualized return of 10.32%, slightly ahead of the index’s 10.22%, which is a favorable outcome for a passive strategy.

Liquidity is typical for an emerging markets ETF. The 30-day median bid-ask spread sits around 0.13%, which reflects the fact that ETF liquidity is ultimately driven by the tradability of the underlying securities. Outside of ADR-heavy strategies, emerging markets ETFs tend to trade with wider spreads than developed market counterparts.

Sector exposure is concentrated in information technology and financials. That profile makes sense once China is removed from the universe. Taiwan and India become the two largest country exposures, each with economies that tilt heavily toward those sectors.

South Korea is the third-largest allocation at 16.57%, which is worth flagging. Depending on the index provider, South Korea is sometimes classified as a developed market rather than an emerging one. In this case, it is treated as emerging, which materially influences both sector and country exposure.

Vanguard Emerging Markets ex-China ETF

VEXC

-0.11%

The lowest-cost option in the category comes from Vanguard. VEXC carries an expense ratio of just 0.07%. On a $10,000 investment, that translates to roughly $7 per year in fee drag, all else being equal.

VEXC tracks the FTSE Emerging Markets ex-China Index. In practice, that results in a broad portfolio of just over 1,000 stocks. The underlying index skews toward companies with relatively solid fundamentals, including an aggregate earnings growth rate of about 18.6% and a return on equity around 17.7%.

There is an important classification nuance to be aware of. FTSE is one of the index providers that treats South Korea as a developed market rather than an emerging one. That decision is reflected directly in VEXC’s holdings.

While Taiwan and India still dominate the portfolio once China is excluded, South Korea is absent entirely. As a result, South Africa becomes the third-largest country exposure.

Dimensional Emerging Markets ex China Core Equity ETF

DEXC

+0.08%

Both XCEM and VEXC rely on market-cap weighting. That approach is simple, cost efficient, and typically results in low turnover, which helps keep expenses down. In practice, it also creates a mild momentum bias, as larger companies naturally receive larger weights.

The trade-off is that investors are implicitly betting that the biggest stocks continue to get bigger, which can work against returns when concentration risk is elevated.

For investors looking for an alternative, DEXC takes an active approach built around Dimensional’s long-standing quantitative framework. Turnover remains relatively low at about 5%, but the portfolio is constructed using systematic tilts toward factors such as size, profitability, and value.

China is excluded by design, but unlike VEXC, DEXC does include South Korea. That results in a meaningful allocation alongside the usual heavyweights of Taiwan and India.

The cost of that flexibility is higher fees. The fund carries a 0.53% gross expense ratio, which is currently waived down to 0.43%. Even after the waiver, that is still several times more expensive than a purely passive option like VEXC.

Please note that this article reflects the author’s personal views and does not represent the opinions of the publication or its affiliates. It is for informational purposes only and does not constitute investment advice. It is essential to seek guidance from a registered financial professional before making any investment decisions.