SPDR Portfolio Emerging Markets ETF

SPEM

Market cap $16.1B

Emerging markets show strong momentum. With diversification flows rising, a weakening dollar and potential Fed cuts, here are the ETFs to tap the trend.

Emerging markets equity returns have been driven by extreme mega-cap concentration, with index breadth collapsing to historic lows and masking weakness across much of the opportunity set. This concentration has distorted relative results for active managers, particularly those constrained by diversification rules or broad benchmarks, as small-cap underperformance and index construction limit flexibility.

SPDR Portfolio Emerging Markets ETF tracks the S&P Emerging BMI Index, emphasizing China, Taiwan, and India, with a 0.07% fee. SPEM offers broad exposure with over 3,000 holdings, a 2.5% dividend yield, and trades at 15x earnings and 2x book value. The ETF is overweight dominant Asian emerging markets by about 10 percentage points versus the MSCI EM Index.

Getting emerging market exposure is a viable option in the current market environment. That's especially so given the global de-dollarization and prospect of further rate cuts by the Federal Reserve.

Emerging markets like China and Brazil show strong relative strength and attractive valuations, making SPEM a compelling buy for 2025. SPEM offers broad, low-cost exposure to large-cap, growth-oriented emerging market equities, with a 2.54% yield and low volatility. Despite seasonally weak months ahead, SPEM's technical momentum is robust, with shares breaking above key resistance and approaching all-time highs.

When it comes to equities exposure, U.S. large-caps continue to garner the lion's share of capital allocations. However, emerging markets (EM) could finally be in the throes of a comeback.

Emerging markets are drawing billions in fresh inflows as U.S. debt fears, tariffs and inflation shake investor confidence.

A clear logic: high nominal yields but low real rates compress the U.S. risk premium, and push capital toward emerging markets. How will SPDR Portfolio Emerging Markets ETF react? I believe SPEM could benefit from this trend, given its strong exposure to China, India, and Taiwan (72.35%). That's because SPEM is positively correlated with EM currencies, and negatively with the U.S. dollar (DXY).

After a tumultuous period for markets in which the Trump administration raised tariffs on goods imported from China to 145%, news of an apparent deal with the Chinese government brought the tariff level down to 30% as of mid-May 2025. The S&P 500 seemed to breathe a sigh of relief at this news, turning positive year-to-date (YTD) after a significant drop in April.

SPEM's high exposure to China and its economic challenges, along with potential Trump administration tariffs, create significant risks for the fund's performance. Despite a positive 2024, SPEM underperformed the S&P 500, delivering lower returns since inception and exhibiting higher downside risk. The Federal Reserve's likely pause on rate cuts and a stronger U.S. dollar will further pressure SPEM's fund price.