Key Morningstar Metrics for Vanguard FTSE Emerging Markets All Cap Index ETF
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★
Vanguard Emerging Markets Stock Index’s broad portfolio and rock-bottom expense ratio should help it outperform its category peers over the long haul. However, the unavoidable geopolitical risk of emerging markets can introduce unwanted volatility.
The fund tracks the FTSE Emerging Markets All Cap China A Inclusion Index, which includes large-, mid-, and small-cap stocks from more than 20 emerging economies. Its market-cap-weighted approach benefits investors by reflecting the market’s collective opinion of each stock’s value while mitigating turnover and trading costs. A buffer around the lower market cap boundary further limits excessive trading. Occasionally, the index will increase exposure to expensive stocks when investors get excited about an area of the market, but that doesn’t undermine its long-term efficacy.
Definitions of emerging markets can vary across index and fund providers. Notably, FTSE excludes South Korea from this portfolio, while the average peer in the diversified emerging markets Morningstar Category invests around 10% in this market. Nonetheless, the portfolio’s extensive diversification mitigates the impact of any single market or stock and keeps performance near the category average. Its 5,000-name lineup limits concentration risk, with the fund’s top 10 positions often accounting for around 20%-25% of its assets. Vanguard changed this fund’s target index to its current bogy in 2016, expanding its reach to locally traded China A-shares ever since.
Emerging markets generally face greater geopolitical risks than their developed counterparts. For instance, FTSE removed Russian stocks from the index in February 2022, and the fund marked its Russia allocation down to zero, creating a drag on returns. The impact on performance was limited by the fund’s single-digit allocation to Russian stocks at the time, but it demonstrates the sometimes-negative impact of emerging market geopolitical risk. The fund also cannot avoid many of the state-owned behemoths prevalent in emerging markets. Such firms may not always prioritize the interests of public shareholders.
All the funds’ share classes fall in the least-expensive quintile of their respective category, which helped each outperform its category average from inception through December 2025. This ultralow price tag should continue to provide a durable advantage.
Vanguard FTSE Emerging Markets All Cap Index ETF: Performance Highlights
The fund’s ETF share class outperformed the category average by 38 basis points annualized from its 2005 inception through December 2025. Its risk-adjusted performance is comparable to the average category peer over this period. The fund’s overweight position in emerging Asian markets like Taiwan boosted returns in recent years compared with the norm.
Country and regional exposure has been and will continue to be an important influence on fund performance. Favoring Taiwan continued to pay off in 2025 as the Taiwanese stock market extended its 2024 winning streak, powered by TSMC’s explosive rally. Nonetheless, missing out on South Korean stocks’ near-100% annual gain in 2025 dented the fund’s edge. It lagged the category average by 5.6 percentage points in 2025, narrowing the gap it created over peers in 2024.
The fund’s largest country exposures will continue to influence short-term category-relative performance, but its broad scope limits long-term deviations. Long-term returns tend to follow the average of its category peers, and its low fee and minimal cash drag should guard the fund’s edge over time.
