How do I buy an MSCI Emerging Markets ETF?
With an MSCI Emerging Markets ETF, you as an investor participate in the performance of emerging markets. Add an MSCI Emerging Markets ETF to your portfolio and broaden your investment portfolio even further. Opportunity investors in particular can use an MSCI Emerging Markets ETF as a return accelerator – when choosing an emerging market ETF to suit your investment strategy, you should consider the following:
Step 1: Accumulating or distributing emerging markets ETFs?
As with all ETFs, you can choose between accumulating (reinvesting) and distributing funds when selecting a suitable emerging markets ETF. Which type of distribution is more suitable for you depends on your personal life situation. Do you need regular payouts for ongoing expenses? Then a distributing ETF might be the right choice for you. Or are you planning long-term capital accumulation with your ETF? Then we advise you to use a reinvesting fund, with which you can benefit in the long term from a kind of compound interest effect.
Tip: Accumulating ETFs fully exploit their strengths in combination with an ETF savings plan. In our ETF comparison, we took a close look at the best savings plan eligible ETFs for your long-term investments.
Step 2: What replication method should the MSCI Emerging Markets ETF have?
ETFs can follow two different replication methods. Here investors have the choice between synthetically replicating ETFs and physically replicating ETFs. While synthetically replicating ETFs (indirect replication) do not buy the stocks of the underlying index, in this case the MSCI Emerging Markets, physically replicating ETFs actually buy the stocks of the MSCI Emerging Markets Index. Within the group of physically replicating ETFs there is another increase: full replication. If the ETF provider (issuer) actually buys all the securities contained in the index, then we are talking about fully replicating ETFs.
Step 3: The fund volume – indicator for the security of your investment
The fund volume is also crucial when choosing an ETF that suits your investment strategy. If this is particularly low, it is more likely that the issuer will give up the fund in the future (this does not usually apply to particularly young ETF funds). In the worst case, this can mean losses for you. If, on the other hand, an ETF has a large fund asset, the costs are spread over a particularly large number of investors. The issuer can reduce costs in the long term, which also reduces the risk that the issuer will discontinue the fund you have selected.
Step 4: Check the investment costs of your investment
As with any investment, you should also get an idea of the costs involved in investing in MSCI Emerging Markets ETFs. You can use the Total Expense Ratio (TER) to quickly and easily compare the fees of different ETFs.
But beware: The TER does not reflect all of the costs of your investment, but only gives an indication of the annual costs of owning an ETF.
So that you don’t miss any hidden costs, you should take another look at the actual total costs, which are indicated with the key figure Total Cost of Ownership (TCO). In addition to the running costs, the TCO also takes into account trading fees, taxes and spreads, for example. In addition, you should keep an eye on the custody fees as well as the order and trading fees.
The tracking error can cause other hidden costs. It provides information about the deviations between the development of the fund and that of the benchmark index: the larger the tracking error, the larger the deviations from the underlying index. The lower the tracking error, the more similar the ETF is to the index.
Extra tip: Be aware of the exchange rate risk
One cost factor you should always consider in a foreign currency ETF is currency risk (also known as exchange rate risk). Currency risk arises when you, as a euro area investor, invest in a security denominated in a foreign currency. It is the same with your investment in an MSCI Emerging Markets ETF that is denominated in US dollars.
Notice: You can find out more about replication methods, the types of distribution and the fees incurred when buying an ETF in the ETF lexicon.