Emerging Market ETFs: Human Focus Outperforms

Core Insights - Emerging market ETFs are experiencing renewed interest, with two of the ten largest U.S.-listed ETF inflow winners being broad EM funds [1] - Low-cost passive strategies dominate ETF flows, but democracy-focused ETFs have outperformed traditional benchmarks [1] Emerging Trends in Emerging Markets - Investors are familiar with flagship broad emerging market ETFs like iShares Core MSCI Emerging Markets ETF (IEMG) and iShares MSCI Emerging Markets ETF (EEM), but there are over 100 products available [1] - A subset of emerging market ETFs incorporates human rights criteria, referred to as democracy-focused ETFs, which have generally outperformed core benchmarks [1] - In 2025, three out of five democracy-focused ETFs returned over 50%, while IEMG and EEM returned around 30% [1] - Year-to-date in 2026, four out of five democracy-focused ETFs are returning high teens to low double digits, compared to low teens for broader emerging market ETFs [1] - Higher allocations to countries like South Korea and Taiwan contribute to the stronger performance of democracy-focused ETFs [1] Opportunities in Democracy-Focused Emerging Market ETFs - The National Security Emerging Markets Index ETF (NSI) excludes companies that are national security threats or human rights violators, maintaining broad emerging market exposure [1] - The First Trust Emerging Market Democracies ETF (EMDM) tracks companies in emerging markets that meet minimum political rights and civil liberties standards [1] - The First Trust Emerging Markets Human Flourishing ETF (FTHF) focuses on companies in emerging markets with high Human Dignity Scores based on freedom metrics [1] - The OneAscent Emerging Markets ETF (OAEM) uses value-based screening to identify impactful investments while excluding harmful companies [1] - The Freedom 100 Emerging Markets ETF (FRDM) employs a freedom-weighting process to favor countries with stronger civil and economic institutions, avoiding exposure to China [1] Bottom Line - International equities, particularly emerging markets, are regaining attention, with a wider array of ETFs available to enhance international allocations beyond core holdings [1]