Emerging markets ETFs outperform S&P 500 in 2026, with China exposure key to returns.

Emerging markets ETFs have significantly outperformed the S&P 500 in 2026, with returns ranging from about 19% to 29% year-to-date compared to the S&P 500's 8%. The key factor driving differences in performance among these ETFs is their exposure to China, which is the largest country weight in standard emerging markets indexes. Funds like IEMG include China and offer broad, low-cost exposure but carry China-specific risks, while EMXC excludes China and has delivered higher returns by focusing on other Asian markets like Taiwan, South Korea, and India. EEM, with higher fees, is favored by traders for its liquidity and options market. Investors should choose based on their outlook for China and investment horizon, as emerging markets offer growth potential amid a weakening dollar and synchronized easing by emerging central banks.