Looking to add emerging markets to your portfolio? EEM offers a technological approach while SCHE is more affordable

• EEM has a much higher expense ratio and has a longer track record than SCHE.

• SCHE offers a higher dividend yield, while EEM has performed better over the past year.

• Both ETFs focus on emerging market financial and technology stocks, but EEM has fewer stocks and leans more toward technology.

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He Schwab Emerging Markets Stock ETF (NYSEMKT:SCHE) stands out for its lower cost and higher performance, while the iShares MSCI Emerging Markets ETF (NYSEMKT: EEM) brings to the table a longer history and slightly more technological exposure.

Both SCHE and EEM aim for broad exposure to emerging market equities, but do so with different priorities. This comparison shows how their costs, sector weightings, performance and risk profiles stack up for investors weighing which approach may fit best into a diversified portfolio.

Beta measures price volatility relative to the S&P 500; Beta is calculated from five-year weekly returns. The 1-year return represents the total return over the past 12 months.

SCHE is much more affordable, charging just 0.07% in management fees compared to EEM’s 0.72%, a difference that could worsen over time. SCHE also offers a higher recent dividend yield, which may appeal to income-focused investors.

EEM tracks large- and mid-cap companies in emerging markets, with a slight tilt toward technology (30%) over SCHE (22%). With 1,214 holdings, EEM is less diversified in terms of the number of shares, but has the largest assets under management (AUM) in the category and has been in the market for almost 23 years (the fund was created in April 2003). Among his first positions are Semiconductor manufacturing in Taiwan (NYSE:TSM), Tencent Holdings (OTC: TCEHY)and Samsung Electronics (005930.KS), which represents a significant portion of the fund’s assets (21.5% for those three main holdings alone).

SCHE also relies heavily on technology and finance, but owns more than 2,100 stocks, making it more diversified by number of companies. Its main holdings include Taiwan Semiconductor Manufacturing, Tencent and Alibaba Group(NYSE: BABA)and represent almost 22% of its assets. However, with less exposure to technology stocks, the fund offers broader industry diversification.

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EEM and SCHE allow anyone to passively invest in emerging markets. In many ways, these funds are very similar. They own more than 1,000 emerging market stocks. While they own a wide variety of companies, their top 10 holdings are very similar. Both have large positions in semiconductor giant Taiwan Semiconductor and significant exposure to major Chinese Internet companies. They also offer similar dividend yields. While SCHE’s is higher in the last 12 months, at 2.9%, EEM’s is not much lower, at 2.2%.

The big difference between these funds lies in their expense ratios. EEM’s 0.72% ratio is 10 times higher than SCHE’s 0.07% annual management fee. As such, investors are paying much more for EEM for very similar exposure to emerging markets. That higher spending could cause this fund’s performance to lag its rival’s in the future.

Given all this, investors may want to consider the cheaper option and invest in SCHE instead of EEM to add emerging markets exposure to their portfolio.

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Matt DiLallo has positions at Taiwan Semiconductor Manufacturing. The Motley Fool has positions and recommends Taiwan Semiconductor Manufacturing and Tencent. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

Looking to add emerging markets to your portfolio? EEM offers a technological approach while SCHE is more affordable originally posted by The Motley Fool