Emerging markets funds: ETF or actively managed?

Emerging markets often sound like a great growth story: young populations, new middle classes, and companies with global ambitions. At the same time, these markets are more demanding than many developed countries. Political decisions can move prices, currencies fluctuate more, and individual companies are sometimes valued by the market differently than their business models might suggest.

That is precisely why the question is valid: Is a low-cost emerging markets ETF enough, or can an actively managed emerging markets fund offer more?

The honest answer: It depends on what you are looking for. An ETF provides broad market coverage. An active fund attempts to differentiate more selectively within that market. Both have their place, but the mechanics behind them are very different.

Why invest in emerging markets at all?

Those looking to invest in emerging markets are usually eyeing economies with higher growth potential than many developed markets. This includes countries with young populations, a growing middle class, and companies catching up in sectors like consumer goods, technology, financial services, or industry.

This can be interesting for your portfolio because emerging markets often follow different economic cycles than the US, Europe, or Japan. They can therefore serve as a diversification tool if you want to broaden your portfolio.

At the same time, the risk side is part of the deal from the start. Emerging markets are often more volatile, political uncertainty can have a greater impact, and currency movements can further influence performance. For this reason, they are better suited as a deliberate addition rather than the foundation of a portfolio.

The standard route: Emerging markets ETF

The most well-known path is via an emerging markets ETF, often based on the MSCI Emerging Markets or a similar index. You get a broadly diversified portfolio of companies from various countries and sectors. Costs are usually low, the products are liquid, and the structure is easy to understand for ETF-savvy investors.

The price for this simplicity: An ETF tracks the index. It may overweight individual companies if they are large in the index, and it can only react to new assessments when the index itself changes. Short positions—positions that can profit from falling prices—are not part of the strategy for a classic ETF.

For many investors, this is exactly what they need. If you are looking for low-cost market exposure and do not want to pay for active selection, an emerging markets ETF can provide a clear, simple building block.

When can an actively managed fund make sense?

An actively managed emerging markets fund takes a different approach. The fund management deliberately selects individual companies, can weight positions more heavily, avoid weaker stocks, and adjust the portfolio when the assessment of a market or company changes.

This can be particularly relevant in emerging markets because information, market quality, and corporate governance vary more widely than in many developed countries. Where the market is less efficient, active management may have more room to create added value. However, the decisive factor is not just the idea itself, but the process behind it.

Active funds are generally more expensive than ETFs. That is why it is worth looking at the work behind the fund: How thoroughly does the team analyze individual companies? How does it handle periods of loss? And has the manager demonstrated over several market cycles that their strategy holds up?

Active Extension: when active management goes one step further

An active extension strategy expands traditional active management by incorporating short positions. This allows the fund to invest more heavily in companies the management team believes in, while also utilizing positions that can profit from the declining share prices of individual companies.

A typical model operates with approximately 130% long positions and 30% short positions. The fund thus amplifies its positive outlooks while offsetting a portion of them through short positions. Ultimately, it remains invested in the stock market to roughly the same extent as a traditional equity fund.

This is the core advantage of this strategy: management can express positive views through long positions and critical views through short positions. If the analysis is correct, this can boost performance. If it is incorrect, that specific position will weigh on the fund. This is implemented within a regulated UCITS fund framework, adhering to established European rules for investment funds.

If you would like to understand more about how such strategies are classified, you can find the relevant background article here: Hedge funds for retail investors.

A practical example: J.P. Morgan Emerging Markets Equity Plus Fund

A concrete example is the JPMorgan Emerging Markets Equity Plus Fund (ISIN LU2190025218), launched in December 2020. The fund invests in emerging markets globally and utilizes an active extension approach.

Specifically, the fund employs the well-known 130/30 model: approximately 130 percent long positions, approximately 30 percent short positions, and around 100 percent net market exposure. Simply put: the fund remains close to an equity fund in its basic profile, but additionally uses the short side to reflect critical assessments of individual companies within the portfolio.

The fund is managed by J.P. Morgan Asset Management. The firm manages $4.6 trillion USD (as of June 30, 2026), invests over $190 million USD annually in equity research, and employs more than 400 equity experts across 9 locations worldwide.

This depth of analysis is particularly relevant for emerging markets. Companies, industries, and political developments must be continuously evaluated. This is precisely where it is determined whether active management can deliver more than mere index tracking.

You can view the JPMorgan Emerging Markets Equity Plus Fund in the NAO app. Hand-picked by our investment team, just like every fund in the NAO app.

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Opportunities and risks at a glance

An actively managed emerging markets fund can be attractive for investors who consciously want more than just index tracking. The opportunity lies in targeted stock selection and the ability to incorporate critical assessments of individual companies into the strategy.

At the same time, the risk remains significant. Short positions can cause losses if the fund management's assessment is not confirmed. In addition, there are typical emerging market risks such as political uncertainty, currency fluctuations, and higher volatility. Losses up to a total loss of capital are possible.

For you, this means: the question is less about whether an emerging markets ETF or a fund is fundamentally superior. The decisive factor is what role this component should play in your portfolio, how much complexity you are consciously willing to accept, and whether you trust the active process.

FAQ

What is an emerging markets fund?

An emerging markets fund invests in companies from developing economies, such as those in Asia, Latin America, Eastern Europe, or Africa. This can be done passively via an ETF or actively through fund management that specifically selects individual stocks.

Is an ETF or an active fund better for emerging markets?

That depends on your goal. An ETF offers low-cost, broad market coverage, while an active fund can react more specifically to individual opportunities and risks. For active funds, the investment process, costs, track record, and risk management are what matter most.

What is an active extension strategy?

An active extension strategy combines long and short positions. In the approach described, the fund invests approximately 130% long and 30% short, resulting in a net market exposure of about 100%. This allows management to express both positive and negative views on individual companies.

How can I invest in the J.P. Morgan Emerging Markets Fund?

You can view the JPMorgan Emerging Markets Equity Plus Fund via the NAO app and invest with no minimum investment required. The decision is yours. Please read the fund documents and the KID in the NAO app before investing.

Not investment advice. Fund documents and KID available in the NAO app.

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