Key Morningstar Metrics for iShares MSCI Emerging Markets Index ETF
- Morningstar Category: Emerging Markets Equity
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★
IShares MSCI Emerging Markets Index ETF XEM accurately captures most of the emerging-market universe. However, indexing is a blunt tool for managing the geopolitical risks inherent to emerging markets, and the fund’s high fee limits its appeal.
This fund tracks the MSCI Emerging Markets Index, which sweeps in large- and mid-cap stocks from 24 emerging markets, including China A-shares and South Korea. It weights each stock by its market cap, which benefits investors by capturing the market’s collective opinion of each stock’s value while mitigating turnover and trading costs. Occasionally, it will increase the fund’s exposure to expensive stocks when investors get excited about an area of the market, but this doesn’t undermine its long-term efficacy. MSCI also employs buffers and liquidity screens in its construction process to make the portfolio easier to track.
MSCI has tweaked the index over the past few years. The addition of China A-shares, along with stocks from Saudi Arabia and Kuwait, widened the scope of the index. Chinese stocks have accounted for just under 30% of the portfolio on average in recent years. While this represents the relative size and importance of the Chinese equity market, it could expose the fund to concentration risk.
Nonetheless, the fund’s broad portfolio should help mitigate the impact of any single market or stock. With over 1,200 names in its lineup, the fund tends to allocate under 25% of its assets to its 10 largest positions. This figure climbed to just over 30% by the end of December 2025 as some of its top names benefited from the artificial intelligence-driven rally last year, such as Taiwan Semiconductor Manufacturing or Samsung Electronics.
In general, emerging markets face greater geopolitical risks than their developed counterparts. For instance, MSCI had to remove Russian stocks from the fund’s target index in February 2022, and the fund marked its Russian stocks’ values down to zero. The impact on performance was limited by the fund’s single-digit allocation to Russian stocks at the end of January 2022. The fund also cannot avoid many of the state-owned behemoths prevalent in emerging markets, which may not always prioritize the interests of public shareholders.
BlackRock charges a hefty 0.82% annual management fee for this exchange-traded fund, despite similar offerings available for a fraction of that price. Nonetheless, this is still lower than what many of its actively managed Morningstar Category peers charge and helped it outperform the category average from its 2009 inception through December 2025.
iShares MSCI Emerging Markets Index ETF: Performance Highlights
The fund has modestly outperformed its average category peer, but it doesn’t have a clear performance edge. From its 2009 inception through December 2025, the fund beat the category average by 45 basis points annualized. The fund can be slightly more volatile than its average peer, bringing its risk-adjusted return, as measured by Sharpe ratio, in line with the category average.
Country and regional exposure have influenced the fund’s performance. The fund’s heavy stake in emerging Asian stocks boosted its returns in recent years, particularly its allocation to Taiwan. Likewise, the fund underperformed in 2023, when Asian markets languished. In 2025, the fund’s inclusion of South Korean stocks finally paid off as the Korean market had one of its best years in recent history, reversing its recent slump. The fund ended up outpacing the category average by over 1 percentage point in 2025.
Geographical tilts influence category-relative performance in the short term, but the fund’s broad scope should limit these deviations. In the long run, the fund’s returns should stay close to category peers, and its below-average fee and low cash drag offer an advantage.
