Emerging Market Funds: What They Are and Examples

Emerging market funds are investment funds that allocate capital to stocks, bonds or other securities issued by companies and governments in developing economies. These markets are typically characterized by faster economic growth, expanding consumer bases and evolving financial systems, alongside higher political, currency and regulatory uncertainty. Investors often use emerging market funds to gain diversified exposure to regions in Asia, Latin America, Eastern Europe and parts of Africa through a single investment vehicle.

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What Is an Emerging Market Fund?

An emerging market fund pools investor money to buy securities tied to countries that are transitioning toward more industrialized, market-driven economies. These funds may focus on equities, fixed-income securities or a blend of both, depending on their strategy and risk profile. Rather than selecting individual foreign securities, investors gain access to a broad set of issuers through a professionally managed structure.

The underlying holdings often reflect economies experiencing rising incomes, urbanization and increased participation in global trade. At the same time, these markets tend to have less-established legal systems, shallower capital markets and greater sensitivity to geopolitical events. As a result, prices can fluctuate more sharply than those of comparable investments in developed countries.

Emerging market funds are commonly structured as mutual funds or exchange-traded funds (ETFs), with portfolios diversified across multiple countries, industries and currencies. This approach allows investors to participate in long-term growth trends while spreading exposure across regions with differing economic drivers.

Examples of Emerging Market Funds

Emerging market funds come in both index-based and actively managed formats, each offering a different way to gain exposure to developing economies. Below are several widely used options and how they approach emerging market investing.

Vanguard FTSE Emerging Markets ETF: This ETF tracks the FTSE Emerging Markets All Cap China A Inclusion Index, providing broad exposure to large-, mid- and small-cap companies across Asia, Latin America, Europe and Africa. It is often used for low-cost, diversified access to emerging market equities.
iShares MSCI Emerging Markets ETF: Designed to follow the MSCI Emerging Markets Index, this fund concentrates on large- and mid-cap stocks in countries such as China, India, South Korea and Brazil, with country weights determined by MSCI’s classification system.
Fidelity Emerging Markets Fund: This actively managed mutual fund selects companies based on bottom-up research, aiming to identify firms with durable business models and long-term growth potential.
T. Rowe Price Emerging Markets Stock Fund: This actively managed fund invests in equities across developing economies, with portfolio holdings selected by the management team rather than designed to track a specific market index. The approach allows for flexibility in country, sector and company exposure based on prevailing market conditions.

Pros and Cons of Investing in Emerging Market Funds

Emerging market funds offer a distinct mix of potential benefits and trade-offs that differ from investments focused on developed economies. Understanding both sides can help clarify how these funds might fit into a broader portfolio.

Pros	Cons
Exposure to economies that may experience faster GDP growth due to industrialization, population growth and expanding middle classes	Greater price volatility driven by political instability, regulatory changes and shifting economic policies
Access to global diversification beyond the U.S. and other developed markets, which can reduce reliance on a single economic cycle	Currency fluctuations that can amplify gains or losses when returns are translated back into U.S. dollars
Opportunities to invest in companies that benefit from rising domestic consumption, infrastructure spending and global trade integration	Less mature financial markets and corporate governance standards, which may increase business and operational risk

Should You Invest in an Emerging Market Fund?

Whether an emerging market fund makes sense often depends on an investor’s time horizon, risk tolerance and existing portfolio mix. These funds tend to move differently than U.S. large-cap stocks, which can add another layer of diversification for investors who already hold domestic and international developed-market assets. The tradeoff is that returns may be uneven over shorter periods, requiring patience and a willingness to tolerate sharper swings.

Portfolio size and asset allocation also matter. Emerging market exposure is commonly treated as a satellite position rather than a core holding, allowing investors to participate in global growth trends without concentrating too much risk in a single segment. Factors such as income needs, tax considerations and rebalancing discipline can further influence whether the allocation feels appropriate.

Bottom Line

Emerging market funds provide a way to invest in developing economies through diversified, professionally managed portfolios. They can offer exposure to faster-growing regions and global economic trends that differ from those in developed markets. At the same time, these funds tend to experience greater volatility due to political, currency and market structure differences. Whether they fit in a portfolio often depends on an investor’s risk comfort, time horizon and their portfolio’s current level of international exposure.

Portfolio Diversification Tips

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Broad index funds can still be heavily tilted toward a small number of companies, sectors or countries. Periodically review sector weights, top holdings and geographic exposure to see whether a single theme is quietly dominating your portfolio.
Holding assets in taxable accounts, tax-deferred accounts and tax-free accounts can add flexibility later. This kind of diversification affects how you rebalance, harvest gains or generate income, not just how the portfolio performs.