Following a long run of disappointment, emerging markets equities finally got their acts in gear last year, as the MSCI Emerging Markets index nearly doubled the S&P 500‘s performance.
That momentum carried into 2026. The developing economies gauge is up 7.4% year to date, while the S&P 500 is off 1.64%. But there’s a rub. Stock-picking in countries such as Brazil, China, India, and others is tricky because U.S. analysts and the mainstream financial press here are focused on domestic names.
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On the bright side, exchange-traded funds (ETFs) provide efficient — and, in many cases, broad — access to stocks in developing nations. However, these funds aren’t cut from the same cloth. The Schwab Fundamental Emerging Markets Equity ETF (NYSEMKT: FNDE) stands as a positive example of that sentiment. For market participants seeking some emerging markets stamps on their investing passports, this ETF is also worth considering today.
As with domestic fare, the most popular emerging markets ETFs are capitalization-weighted index funds, meaning they weight components by market capitalization. This Schwab Emerging Markets ETF, which tracks the RAFI Fundamental High Liquidity Emerging Markets index, marches to the beat of a different, not cap-weighted, drummer.
That index focuses on three core principles: cash flow, sales, and shareholder rewards (buybacks and dividends). By no means is that a complex or exotic methodology, but it has the potential to position investors for success. Over the past five years, this ETF thoroughly outpaced the average returns produced in the emerging markets ETF category.
There’s something else, too, for investors to consider with this emerging market fund. Obviously, it’s passively managed because it tracks an index, but there is some activity in that benchmark. A quarter of the index’s holdings are rebalanced every quarter in an effort to boost exposure to holdings with value traits, while paring allocations to stocks that have become richly valued.
It’s great that the index is performing that legwork, but it’s not a free lunch. In emerging markets, a broad value approach can lead to overweight positions in commodities-intensive sectors such as energy and materials. This Schwab ETF reflects that, allocating almost 30% of its weight to those groups, nearly triple the 11% weight to those sectors in the MSCI index.
