Around the world in ETFs: single-country funds to add spice

Exchange-traded funds (ETFs) are a gateway to all manner of esoteric investments, from baskets of “thematic” shares in areas such as artificial intelligence (AI) to bitcoin. See here for our separate guide to thematic ETFs.

But they also have a more prosaic function, as a form of cheap and simple access to stock markets around the world.

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The providers of such ETFs also share plenty of information thanks to a requirement to disclose a substantial level of portfolio detail, from regional allocations to a full breakdown of holdings. Other metrics that are sometimes available, from yield figures to measures of valuation, can give further insights.

They therefore give a good sense of how a market is composed and what its main risks and attractions might be.

This four-part series, “Around the world in ETFs”, looks to examine what these vehicles offer and what they can tell us about the world’s most exciting markets.

We start with a higher-octane and lesser-known area before turning to more widely followed markets.

Single-country funds

Our first article takes in funds focused on more exciting (but risky) single-country markets including the three biggest constituents of the MSCI Emerging Markets index: China, Taiwan and India. We have broken down their performance, as well as what these funds are telling us.

For consistency around what gets disclosed, we have picked out offerings from the passive fund giant (and dominant market player) iShares where available, although investors will want to shop around if they wish to target these regions.

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For the sake of using iShares’ disclosure, a couple of our examples are not listed in the UK, but there are plenty of other options: a range of cheap China trackers now exist, for example, such as the Franklin FTSE China UCITS ETF GBP (LSE:FRCH).

Generally it pays to pick out ETFs that are large and liquid, that track the most appropriate index, and that come with a low yearly ongoing charges figure (OCF).

Also bear in mind that due to the higher-risk nature of single-country emerging market ETFs, such funds fit into the “satellite” section of a well-diversified portfolio.

Performance

Single-country funds in Asia, the emerging markets and other regions such as Latin America can be highly volatile, with substantial risks and rewards depending on your timing.

This is obvious from a look at the most prominent emerging market. The iShares MSCI China ETF (NASDAQ:MCHI) has returned 30.1% in just 12 months, but it is still down by around 9% in the five years to 3 November 2025.

Source: FE Analytics, 03/11/2025. Past performance is not a guide to future performance.

That’s a reflection of the difficult few years the market has endured since the onset of a regulatory crackdown back in the early 2020s, and more recently the fact that government support has spurred shares back to life.

More generalist Asia and emerging markets differ significantly on how much exposure they take to China, with plenty having less exposure than a conventional emerging market or Asia tracker fund.

Other big emerging markets have had a very different experience to China.

The iShares MSCI India ETF USD Acc GBP (LSE:IIND) has had a rough run of performance recently, losing around 3% over a year as the market has retrenched, but the fund has done very well still over a five-year spell. For now, the iShares MSCI Taiwan ETF USD Dist USD (LSE:IDTW) is looking good over both the short and medium term.

On a more niche note, it’s worth examining the top performer from our list over 12 months.

The iShares MSCI Korea ETF USD Dist USD (LSE:IDKO) has returned 66.1% over 12 months, with its top two holdings offering a good explanation for such strong returns. Samsung Electronics Co Ltd DR (LSE:SMSN), which accounts for around a quarter of the portfolio, is up by around 100% for 2025 as at 4 November, with SK Hynix (on a 16% weighting) sitting on stunning gains of more than 240%.

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As with some of the other big winners of 2025, these returns can be linked at least in part to the AI boom. SK Hynix (one of the top 10 holdings for WS Blue Whale Growth I Sterling Acc (BD6PG56)) makes memory chips, and both it and Samsung have signed partnerships with OpenAI to build out AI infrastructure.

Meanwhile, the Vietnam ETF is on a strong run, partly reflecting the record high shares reached after FTSE Russell announced plans to upgrade it to emerging market status (from frontier market status). But Vietnam has had plenty of curveballs this year, including initially being singled out for hefty trade tariffs by US President Donald Trump.

Taiwan is also having a moment in the sun. The success of the iShares MSCI Taiwan ETF is at least partly owed to the strong performance of Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), which accounts for nearly a third of the fund.

TSMC is a major presence in many a global equity fund but even more so in many emerging market funds. As the biggest constituent of the MSCI Emerging Markets index, it makes up roughly 11% of that market.

Immature markets can often turn out to have concentrated bets, but that can also apply to more established regions.

Note that Tencent Holdings Ltd (SEHK:700) and Alibaba Group Holding Ltd ADR (NYSE:BABA) are a major bet for anyone wanting to take a more dedicated exposure to China. Tencent accounts for almost 18% of the China ETF, with Alibaba on roughly 12.5%.

Future prospects

As the trusty disclaimer says, past performance is no indicator of future returns. But some further analysis gives a sense of what investors are exposed to if they buy in.

Indian equities performed extremely strongly in recent years, with both tracker funds and some active names benefiting handsomely. But investors have worried for some time that the market has grown expensive, which partly explains its recent struggles.

Is India still expensive? iShares breaks out the P/E ratios on its ETFs, and by that one metric the answer appears to be “yes”. The India ETF comes with a P/E ratio of 25.5, much higher than most of the other funds.

Source: Provider websites, 31/10/2025. 

The Taiwan ETF also has a high P/E ratio relative to peers. It should be noted that some of the “cheap” markets, such as Turkey, are valued this way after a dire run of performance.

On another note, emerging and frontier markets are often heralded as a (risky) play on countries with young populations and a growing middle class.

Some of this is apparent from the sectors that dominate these funds: financials, which can serve as one play on consumers getting wealthier, make up almost a third of the India ETF, with HDFC Bank Ltd ADR (NYSE:HDB) as the top holding. Financials also have the chunkiest sector weighting in the Vietnam, Indonesia and Brazil funds.

It’s worth noting that consumer discretionary shares are the biggest sector in the China fund, while the dominance of the stocks discussed earlier makes information technology the biggest sector in the Korea and Taiwan funds.

Has active done any better?

In theory, a stock picker should be better placed to navigate such niche, risky markets than a tracker fund. But does that argument stack up?

The results are mixed. If we look at the three dedicated China investment trusts, all three have comfortably outpaced the ETF over a 12-month period.

Two names, Baillie Gifford China Growth Trust Ord (LSE:BGCG) and JPMorgan China Growth & Income Ord (LSE:JCGI), have suffered much greater losses over a five-year period, though Fidelity China Special Situations Ord (LSE:FCSS) has not done hugely worse than the ETF.

In India, 17 funds out of 31 from the relevant Investment Association (IA) and Association of Investment Companies (AIC) sector beat the ETF over 12 months. There are 14 names that have beaten the ETF over five years, with Jupiter India I Acc, India Capital Growth Ord (LSE:IGC) and Ashoka India Equity Investment Ord (LSE:AIE) doing especially well.

To touch on one other country, all three of the dedicated Vietnam trusts, VinaCapital Vietnam Opp Fund Ord (LSE:VOF), Vietnam Enterprise Ord (LSE:VEIL) and VietNam Holding Ord (LSE:VNH), trail our chosen ETF over 12 months. However, they are all well ahead of the ETF over five years.

In Vietnam, trusts can broaden their investment universe by putting money into private companies. That offers a real difference beyond the usual active/passive debate.

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A final thing to bear in mind is that there are rules to ensure actively managed funds have sufficiently diversified portfolios.

The European Union’s UCITS rules, a regulatory framework for funds sold to investors in Europe, stipulate that holdings accounting for more than 5% of a fund’s portfolio cannot collectively account for more than 40% of the fund’s overall holdings.

In addition, UK fund rules prohibit an individual holding exceeding 10% of a fund’s total assets, while investment trusts do not have a 10% limit. The regulation is known as the “5/10/40” rule.

Diversification rules do apply to passive ETFs but these are looser. A paper from Amuni on UCITS ETFs notes that the index tracked by a fund must follow a “20/35” ratio. Each constituent must have a weighting of less than 20%, although in exceptional circumstances one constituent can go up to 35%.

Those fund rules can turn some fund managers running concentrated portfolios into forced sellers when one of their top positions has a purple patch.

However, on the other hand, given the strong performance of certain stocks highlighted in this article, being forced to have underweight positions may well work in some active funds’ favour in the coming years if those strong share price runs are derailed.