SPEM Tracks 3,000 Holdings Across China, India, Brazil, South Africa, Mexico, and Other Countries. Here Is Why a Small Emerging-Markets Allocation Could Pay Off for Patient Investors

So far in 2026, there has been increasing interest in international and emerging-market stocks and exchange-traded funds (ETFs). According to research from Bank of America earlier this year, four times more money is flowing into international stocks than U.S. stocks.

There are several reasons, but mainly it is a sign of investors diversifying away from U.S. equities, mainly large-cap stocks, which have generally become overvalued after a three-year bull market. Also, international and emerging market stocks are benefiting from a weaker dollar, favorable monetary policy, and a surge in infrastructure investments, as well as the broadening artificial intelligence (AI) boom, among other reasons.

Image source: Getty Images.

Diversification is always important, but it is taking on even greater significance now, particularly for those investors whose portfolios got top-heavy with large-cap U.S. growth stocks during the bull market. That means it makes sense to diversify with both international stocks and ETFs investing in companies in developed nations, as well as those from emerging markets.

One great way to tap into emerging markets is through the State Street SPDR Portfolio Emerging Markets ETF (NYSEMKT: SPEM).

Covering the gamut of emerging markets

The State Street SPDR Portfolio Emerging Markets ETF provides investors with access to a gamut of emerging-market stocks, with roughly 3,000 holdings.

It tracks the S&P Emerging BMI Index, which offers broad exposure to emerging-market stocks. And by broad, I mean all of them -- the investable universe of emerging markets across large, mid, and small caps.

As I write this, the ETF holds 2,983 stocks from 30 different emerging markets. About 29% of the portfolio is made up of stocks from China, while 28% are from Taiwan and 16% are from India. Stocks from Brazil make up 5%, while South Africa and Saudi Arabia account for 3% of the portfolio each.

Technology is the largest sector, making up 28% of the ETF, followed by financials at 21% and consumer discretionary stocks at 10%.

The top three holdings are Taiwan Semiconductor, Tencent Holdings from China, and Alibaba Group, also from China.

Beating the S&P 500 and Russell 3000

SPEM has returned 9% year to date, which tops the S&P 500 and the broad market Russell 3000. Over the past year, it has returned 30%. It hasnʻt performed as well as its U.S. counterparts over the past five- and 10-year periods, but those have been strong cycles for U.S. stocks.

Markets go in cycles, and some experts, including some at Vanguard, expect international stocks to outperform U.S. stocks over the next decade, making diversifying with emerging markets critical.

With its broad exposure, this ETF is a solid option for investors who donʻt have an intimate knowledge of emerging markets but are looking to diversify. You don't have to take a major position, but even a small allocation to an emerging-market ETF like this can provide good balance against volatile U.S. markets.

Bank of America is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. 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.