In 2026, several exchange-traded funds (ETFs) focusing on emerging markets, specifically excluding China, have delivered exceptional returns, far surpassing the performance of the broader S&P 500 index. These funds, including the iShares MSCI Emerging Markets ex China ETF (EMXC), Freedom 100 Emerging Markets ETF (FRDM), and Columbia EM Core ex-China ETF (XCEM), have achieved year-to-date gains ranging from 36% to 41%, leaving the S&P 500's 9% increase far behind. This substantial outperformance underscores a strategic shift among investors towards diversifying their emerging market exposure away from China, redirecting capital into countries like Taiwan, India, and South Korea that have shown vigorous economic expansion.

This trend highlights a growing recognition of the distinct opportunities and risks associated with emerging markets when China is factored out. Investors are increasingly seeking to capitalize on the robust growth trajectories of other developing economies, which have been obscured or overshadowed by China's dominant presence in traditional emerging market benchmarks. The divergent performance of these ex-China ETFs signals a recalibration of global investment strategies, favoring markets with strong internal growth drivers and potentially lower geopolitical complexities.

The Strategic Shift Towards Ex-China Emerging Markets

The notable outperformance of ex-China emerging market ETFs, with returns significantly exceeding the S&P 500's, points to a clear strategic pivot in investment allocation. Traditionally, emerging market benchmarks heavily weighted Chinese equities, intertwining their performance with Beijing's economic policies and market sentiment. However, the success of funds like EMXC, FRDM, and XCEM demonstrates a compelling alternative. By reallocating investments from China to countries such as Taiwan, India, and South Korea, these funds have tapped into distinct growth engines. These regions have shown impressive individual market surges, with South Korea and India posting substantial gains in the preceding year, showcasing the benefits of a more diversified emerging market strategy that is not singularly dependent on China's trajectory. This strategic adjustment allows investors to focus on specific national growth stories and circumvent potential risks associated with concentrated exposure to the Chinese market.

This strategic shift is driven by a desire to gain exposure to developing economies without inheriting the complexities and volatility often associated with China. By excluding Chinese companies, these ETFs concentrate on a basket of other high-growth nations. For instance, the reallocation often sees increased exposure to the robust technology sectors of Taiwan and South Korea, and the burgeoning consumer markets of India. Brazil, Saudi Arabia, South Africa, and Mexico also feature prominently, providing a broader geographical and sectoral diversification. This approach has proven highly effective in generating superior returns, as evidenced by the 30-percentage-point lead over the S&P 500. The differentiation in performance signals that decoupling from China allows for a more direct capture of growth from diverse and dynamic emerging markets.

Diverse Approaches to Ex-China Investing: EMXC, FRDM, and XCEM

The three leading ex-China ETFs—EMXC, FRDM, and XCEM—each offer a unique investment methodology tailored to different investor preferences. EMXC stands out as the default choice for investors seeking a broad, market-capitalization-weighted exposure to emerging markets without China. Its substantial asset base and diversified holdings across 650 individual securities provide a comprehensive and liquid option. EMXC's cost-effectiveness, with a 0.25% expense ratio, and its focus on major players like Taiwan Semiconductor and Samsung Electronics, make it an attractive vehicle for those comfortable with a portfolio heavily influenced by the technology sector and Indian large-cap companies. It serves as a standard for investors looking to simply remove China from their existing emerging market allocations, offering a straightforward and efficient solution.

In contrast, FRDM offers a more specialized, value-based approach by integrating a 'freedom screen' that excludes authoritarian regimes, including China, Russia, and Saudi Arabia. This unique filter prioritizes countries based on civil liberties and rule-of-law metrics, appealing to investors who seek ethical considerations alongside financial returns. While its 0.49% expense ratio is higher due to its specialized screening process and smaller asset base, FRDM's one-year return of 82% highlights the potential benefits of this targeted strategy, particularly in countries like Taiwan, South Korea, Chile, and Poland. XCEM, on the other hand, provides an alternative methodology, tracking Columbia Threadneedle's proprietary Beta Advantage index. Though it trails EMXC and FRDM in year-to-date performance, its distinct country and sector footprint makes it a valuable complement to EMXC for allocators aiming for further diversification and reduced benchmark risk, especially given its smaller size and potentially wider bid-ask spreads during market volatility.