Diversifying in September? iShares Emerging Markets ETF vs. iShares World ETF Compared.

The iShares MSCI World ETF (NYSEMKT:URTH) offers broad developed-market exposure with lower historical drawdown, while the iShares Core MSCI Emerging Markets ETF (NYSEMKT:IEMG) provides cheaper access to higher-growth developing regions.

These two funds from iShares allow investors to gain international equity exposure, though they target vastly different geographic segments. While one focuses on established economies like the U.S. and Europe, the other bets on the long-term growth potential of emerging markets like China, India, and Brazil.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The iShares Core MSCI Emerging Markets ETF is significantly more affordable, sporting an expense ratio of 0.09% compared to the 0.24% charged by the iShares MSCI World ETF. Investors seeking income may also find the emerging markets fund more attractive, as it currently offers a higher distribution yield.

Performance & risk comparison

What's inside

The iShares MSCI World ETF concentrates on developed economies. Its primary sectors are technology at 30%, financial services 17%, and industrials 11%. Its largest positions include Nvidia at 5.5%, Apple at 5.1%, and Microsoft at 3.9%. It launched in 2012. iShares MSCI World ETF has paid $2.84 per share over the trailing 12 months, which on its recent ~$209.9 share price works out to a 1.4% yield.

In contrast, the iShares Core MSCI Emerging Markets ETF tracks large-, mid-, and small-cap stocks in developing nations. Sector weights lean toward technology at 39%, financial services at 18.4%, and consumer cyclical at 8.2%. Top holdings include Taiwan Semiconductor Manufacturing at 13.27%, Samsung Electronics at 6.21%, and SK Hynix at 4.78%. It launched in 2012. iShares Core MSCI Emerging Markets ETF has paid $1.80 per share over the trailing 12 months, which on its recent ~$82.4 share price works out to a 2.2% yield.

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Which looks like the better buy

Allocating a portion of your portfolio to international stocks can be a solid way to diversify. These two ETFs, the iShares MSCI World ETF and the iShares Core MSCI Emerging Markets ETF, both offer investors exposure to international stocks, but in different ways, with different risk profiles and growth prospects.

URTH focuses on developed economies, including the U.S., Canada, and Europe. That's probably why its top holdings, Nvidia, Apple, and Microsoft, look familiar to domestic investors. This allocation provides stability and reliability with a smaller maximum drawdown than IEMG but also a lower return over the last year.

IEMG, on the other hand, focuses on emerging markets like Brazil, China, South Korea, and Taiwan. Because of its inclusion of those last two countries, it's currently even more heavily tilted toward technology than URTH. It also has a lower expense ratio, a higher dividend yield, and has outperformed URTH over the last year. If global diversification is your goal, IEMG will probably appeal to you more than URTH, which holds many of the same top stocks you may already have in your portfolio individually or via another popular index fund. But this international diversification also introduces more risk, as international companies, particularly in emerging markets, may deal with currency exchange fluctuations, geopolitical uncertainty, and economic instability.

Sarah Sidlow has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.