By Tony Dong, MSc, CETF on May 6, 2026 Estimated reading time: 8 minutes

How to get back into emerging markets using ETFs

By Tony Dong, MSc, CETF on May 6, 2026 Estimated reading time: 8 minutes

A practical guide to developing-country equity ETFs, covering classification differences, higher volatility, and key tax considerations for Canadian investors.

There is nothing like recency bias to get investors rethinking their portfolios. For Canadian investors, that historically meant an overweight to U.S. equities, usually at the expense of international exposure, whether developed or emerging markets.

Part of this comes down to experience. Many younger investors did not invest through the so-called “lost decade,” from the early 2000s through the tail end of the global financial crisis. According to Dimensional Fund Advisors, the S&P 500 delivered negative annual returns over that stretch. In contrast, areas like U.S. small caps, value stocks, international equities, and emerging markets significantly outperformed.

From the turn of the decade through the post-COVID stimulus era, the opposite played out. U.S. equities, driven by mega-cap technology and growth companies, dominated global markets. That has shaped how many investors think about diversification today.

Now, after underperforming for more than a decade, emerging markets appear to be gaining some momentum again. Over 2024 and 2025, the iShares Core MSCI Emerging Markets IMI Index ETF (XEC) returned 25.34% in Canadian-dollar terms. Over the same period, the iShares Core S&P 500 Index ETF (XUS) returned 12.06%. That kind of performance gap naturally attracts attention. Nothing prompts investors to reassess their allocations quite like recent returns. 

The best ETFs in Canada

At the same time, emerging markets are not new. They have long been a core component of diversified portfolios. If you are invested in an asset-allocation ETF, you likely already have some exposure.

But if you are building your own portfolio, it is not as simple as picking a fund with “emerging markets” in the name. There are meaningful differences in how these ETFs are constructed, what they actually hold, and the risks they introduce. Here are some of the nuances Canadian investors should watch out for.

What counts as an emerging market isn’t always clear

At a high level, emerging markets are countries that sit between developing and fully developed economies. They tend to have faster growth potential, expanding middle classes, and improving capital markets, but also come with higher political, currency, and governance risks.

That general definition is widely accepted. Where things start to differ is in how index providers classify individual countries. You need to understand how the benchmark provider defines what qualifies as........

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