Schwab Emerging Markets ETF vs State Street Climate Fund: Do Emerging Markets or Climate Stocks Offer Better Growth in 2026?

The State Street SPDR MSCI ACWI Climate Paris Aligned ETF (NASDAQ:NZAC) targets global companies aligned with Paris Agreement climate goals, whereas Schwab Emerging Markets Equity ETF (NYSEMKT:SCHE) provides broad market capitalization exposure to developing nations.

Investors evaluating these funds are choosing between two distinct diversification strategies. While one focuses on the growth potential of emerging economies, the other implements a sustainability overlay across a global universe of large and mid-sized companies to mitigate climate-related financial risks.

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 as of the close of trading on July 30.

The Schwab fund is the more affordable option with a 0.06% expense ratio. It also offers a higher payout, with its 2.6% yield outpacing the 2.1% distribution provided by the climate-aligned State Street fund.

Performance & risk comparison

What's inside

State Street SPDR MSCI ACWI Climate Paris Aligned ETF allocates 37% of its portfolio to technology, 16% to financial services, and 9% to healthcare. The fund uses an ESG screen to select 625 securities that align with net-zero transition goals. Its largest positions include Nvidia Corp (NASDAQ:NVDA) at 5.7%, Apple Inc. (NASDAQ:AAPL) at 4.6%, and Microsoft Corp (NASDAQ:MSFT) at 2.9%. Launched in 2014. State Street SPDR MSCI ACWI Climate Paris Aligned ETF has paid $0.94 per share over the trailing 12 months, which on its recent ~$45.54 share price works out to a 2.1% yield.

Schwab Emerging Markets Equity ETF concentrates on developing markets, with 34% in technology, 21% in financial services, and 9% in consumer cyclicals. The fund tracks the FTSE Emerging Index and maintains a broad portfolio of 2,181 positions. Top holdings include Taiwan Semiconductor Manufacturing at 17.1%, Tencent Holdings at 3.17%, and Alibaba Group Holding at 2.1%. Launched in 2010. Schwab Emerging Markets Equity ETF has paid $0.95 per share over the trailing 12 months, which on its recent ~$35.72 share price works out to a 2.6% yield.

Which fund is the better buy?

Both funds are in sectors that offer investors access to growth stocks, but they take very different approaches.

SCHE, the Schwab emerging markets ETF, is two-thirds in emerging markets with its portfolio, 36% in developed, non-U.S. markets, and the last 1% in U.S. stocks. It is 86% in large cap stocks, mostly growth stocks, which means the fund effectively owns the largest stocks in its various geographies. It is highly concentrated in a few countries, led by Taiwan, at 31% of its assets, mainland China at 27%, and India at more than 16%.

NZAC, the State Street climate ETF, is nearly two-thirds in U.S. equities, with the balance in non-U.S. developed markets (29%) and emerging markets (6%). Stylistically, it’s 80% in large-cap stocks and nearly all of the balance in mid-caps. It is no surprise that the U.S. dominates the portfolio, with no other country accounting for more than 4% of allocation (that being Canada).

Performance-wise, SCHE has had the better of NZAC in the past year, returning 20.1% over the past 52 weeks and 10% year-to-date 2026, compared to 16.5% over 1 year and 7.4% in 2026 so far. Yet NZAC has bested SCHE in the past three years, with annualized returns of 16.3% to 14.9%. Over the 5- and 10-year time frames, NZAC is also the winner with gains of 9.4% and 11.7%, respectively, compared to SCHE’s 6.4% 5-year return and 8% 10-year return.

Ordinarily, NZAC’s better long-term performance would give it the nod over SCHE, but it’s worth investors noting what they are really getting with NZAC. While it is a climate-aligned fund, choosing stocks it believes are in tandem with the Paris accords, its portfolio is dominated, at least right now, by names investors will see in any tech, growth, or U.S. large-cap fund -- its top 10 holdings roster looks identical to any growth tech fund. It pays to be wary of funds that appear to be closet mainstream index funds and/or don’t truly align with the approach they are selling to investors.

By that measure, SCHE delivers more of what it promises investors in its name: mainly exposure to emerging markets. That, plus its very good recent performance, makes it the better buy for 2026.

For more guidance on ETF investing, check out the full guide at this link.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tencent. The Motley Fool has a disclosure policy.