A part of this comes right down to expertise. Many youthful traders didn’t make investments by means of the so-called “misplaced decade,” from the early 2000s by means of the tail finish of the worldwide monetary disaster. Based on Dimensional Fund Advisors, the S&P 500 delivered unfavorable annual returns over that stretch. In distinction, areas like U.S. small caps, worth shares, worldwide equities, and rising markets considerably outperformed.
From the flip of the last decade by means of the post-COVID stimulus period, the other performed out. U.S. equities, pushed by mega-cap expertise and development corporations, dominated international markets. That has formed what number of traders take into consideration diversification at present.
Now, after underperforming for greater than a decade, rising markets seem like gaining some momentum once more. Over 2024 and 2025, the iShares Core MSCI Rising Markets IMI Index ETF (XEC) returned 25.34% in Canadian-dollar phrases. Over the identical interval, the iShares Core S&P 500 Index ETF (XUS) returned 12.06%. That form of efficiency hole naturally attracts consideration. Nothing prompts traders to reassess their allocations fairly like latest returns.
On the identical time, rising markets are usually not new. They’ve lengthy been a core part of diversified portfolios. In case you are invested in an asset-allocation ETFyou probably have already got some publicity.
However if you’re constructing your individual portfolio, it’s not so simple as choosing a fund with “rising markets” within the identify. There are significant variations in how these ETFs are constructed, what they really maintain, and the dangers they introduce. Listed below are among the nuances Canadian traders ought to be careful for.
What counts as an rising market isn’t all the time clear
At a excessive degree, rising markets are international locations that sit between growing and absolutely developed economies. They have an inclination to have quicker development potential, increasing center courses, and enhancing capital markets, but additionally include larger political, forex, and governance dangers.
That normal definition is broadly accepted. The place issues begin to differ is in how index suppliers classify particular person international locations. It’s essential to perceive how the benchmark supplier defines what qualifies as “rising” versus “developed,” as a result of these selections instantly have an effect on what you find yourself proudly owning.
Take the above talked about XEC for example. As of April 2026, its nation publicity in descending order contains, however just isn’t restricted to, Taiwan, China, South Korea, India, Brazil, South Africa, Saudi Arabia, Mexico, Malaysia, the United Arab Emirates, Thailand, and Poland.
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Now evaluate that to the Vanguard FTSE Rising Markets All Cap Index ETF (VEE). Its prime exposures from largest to smallest embody China, Taiwan, India, Brazil, South Africa, Saudi Arabia, Mexico, Malaysia, Thailand, and the United Arab Emirates.
Discover what’s lacking from VEE that’s current in XEC: South Korea. The distinction comes right down to index methodology. MSCI, which underpins XEC, classifies South Korea as an rising market. FTSE, which Vanguard follows, classifies it as a developed market.
Because of this, South Korea makes up about 17.19% of XEC’s portfolio, with main holdings like Samsung Electronics and SK Hynix, whereas it’s completely absent from VEE. That could be a significant shift in publicity, significantly given South Korea’s position in international expertise provide chains. (Traders proudly owning worldwide developed-market ETFs will face the same state of affairs as properly.)
There isn’t any must take a agency stance on whether or not South Korea ought to be thought-about developed or rising. Even main index suppliers disagree. The important thing takeaway is that the label on the ETF doesn’t inform the complete story. It’s essential to look beneath the hood at nation weights and index guidelines to grasp what you’re really shopping for.
Traders usually underestimate emerging-market volatility
On the subject of newer traders, one statement value making is that many could also be overestimating their danger tolerance. Over the previous a number of years, markets have skilled shocks, however a lot of them have been both short-lived or shortly reversed.
The March 2020 COVID crash rebounded quickly. The 2022 bear market was extra drawn out, however nonetheless comparatively shallow by historic requirements, even when it felt worse attributable to bonds declining alongside shares.
For a lot of traders, particularly those that began investing extra not too long ago, there was restricted publicity to extended drawdowns. That may form expectations. It isn’t unusual to see portfolios constructed round 100% equities beneath the idea that markets will development upward over time. Whereas that’s broadly true over lengthy horizons, the trail may be risky, and people swings grow to be extra noticeable as portfolio values develop.
One method to quantify that is by means of normal deviation, which measures how a lot returns are inclined to differ round their common. Greater normal deviation means bigger and extra frequent swings in worth.
