Want to Add Emerging Markets To Your Portfolio? EEM Offers a Tech Focus While SCHE Is More Affordable

The Schwab Emerging Markets Equity ETF (NYSEMKT:SCHE) stands out for its lower cost and higher yield, while the iShares MSCI Emerging Markets ETF (NYSEMKT:EEM) brings a longer history and slightly heavier tech exposure to the table.

Both SCHE and EEM target broad emerging markets equity exposure, but they go about it with different priorities. This comparison lays out how their costs, sector weights, performance, and risk profiles stack up for investors weighing which approach may fit better in a diversified portfolio.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

SCHE is much more affordable, charging just 0.07% in management fees compared to EEM’s 0.72%, a difference that could compound over time. SCHE also offers a higher recent dividend yield, which may appeal to income-focused investors.

Performance & risk comparison

What's inside

EEM tracks large- and mid-cap companies across emerging markets, with a slight tilt toward technology (30%) over SCHE (22%). With 1,214 holdings, EEM is less diversified by number of stocks, but it commands the largest assets under management (AUM) in the category and boasts nearly 23 years on the market (the fund’s inception date is April 2003). Its top positions include Taiwan Semiconductor Manufacturing (NYSE:TSM), Tencent Holdings (OTC:TCEHY), and Samsung Electronics (005930.KS), representing a significant portion of the fund’s assets (21.5% for those top three holdings alone).

SCHE also leans heavily on technology and financials, but holds over 2,100 stocks, making it more diversified by company count. Its top holdings feature Taiwan Semiconductor Manufacturing, Tencent, and Alibaba Group(NYSE:BABA), and comprise nearly 22% of its assets. However, with less exposure to tech stocks, the fund offers broader industry diversification.

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What this means for investors

EEM and SCHE enable anyone to passively invest in emerging markets. In many regards, these funds are very similar. They hold more than 1,000 emerging market stocks. While they hold a wide variety of companies, their top 10 holdings are very similar. Both have large positions in semiconductor giant Taiwan Semiconductor and meaningful exposure to leading Chinese internet companies. They also provide similar dividend yields. While SCHE’s is higher over the last 12 months at 2.9%, EEM’s isn’t all that much lower at 2.2%.

The big difference between these funds lies in their expense ratios. EEM’s 0.72% ratio is 10 times higher than SCHE’s 0.07% annual management fee. As such, investors are paying much more for EEM for very similar exposure to emerging markets. That higher expense could cause this fund’s performance to lag its rival in the future.

Given all this, investors might want to consider the cheaper option and invest in SCHE rather than EEM to add emerging markets exposure to their portfolio.

Matt DiLallo has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing and Tencent. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.