Emerging Market Stock ETFs: MorningStar's Top Picks from Bank of Montreal's Analysis

TSX Brief: MorningStar recommends four emerging market stock ETFs as the "best" options, according to its analysts. Bank of Montreal (BMO) is a North American bank providing personal and commercial banking, wealth management, global markets, and investment banking products and services to approximately 13 million customers across North America and select global markets.

Investing in emerging markets can be a strategic way to diversify a portfolio, but it often comes with challenges. Exchange-traded funds (ETFs) offer a convenient solution by providing exposure to these markets with minimal hassle. Morningstar analysts have identified four standout emerging market stock ETFs, which they consider the best options for Canadian investors.

The top four ETFs, as evaluated by Morningstar, are:

1. BMO MSCI Emerging Markets ETF (ZEM):
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: 4 Stars
- Assets Under Management (AUM): CAD 1.5 billion
- Index Tracked: MSCI Emerging Markets Index
- Description: This ETF tracks large- and mid-cap stocks from 24 emerging markets, holding approximately 800 stocks. It excludes the smallest 15% of firms based on free-float-adjusted market cap.

2. Vanguard FTSE Emerging Markets All Cap Index ETF (VEE):
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: 4 Stars
- AUM: CAD 2.7 billion
- Index Tracked: FTSE Emerging Markets All Cap China A Inclusion Index
- Description: This ETF includes small-cap stocks, holding about 5,000 different stocks. It excludes stocks from South Korea, Peru, and Poland, and includes stocks from Iceland and Romania. It has the lowest management expense ratio (MER) at 0.25%.

3. iShares Core MSCI Emerging Markets IMI ETF (XEC):
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: 3 Stars
- AUM: CAD 2.4 billion
- Index Tracked: MSCI Emerging Markets Investable Market Index
- Description: This ETF includes small-cap stocks, holding more than 3,000 stocks. It covers the top 99% of market capitalization in the markets it invests in.

4. iShares ESG Aware MSCI Emerging Markets ETF (XSEM):
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: 3 Stars
- AUM: CAD 4.2 billion
- Index Tracked: MSCI Emerging Markets Extended ESG Focus Index
- Description: This is the largest fund on the list and the only one that uses environmental, social, and governance (ESG) characteristics in its investment decisions. It holds over 300 stocks, aiming to maintain a 1% tracking error to the MSCI Emerging Markets Index.

In other financial news, CIBC has upgraded Bank of Montreal (BMO) to "Outperformer" with a new price target of C$180.00. The upgrade is based on expectations for lower credit losses, improvements in operating efficiency, and a positive outlook for U.S. investment banking. Bank of Montreal's recent financial results, including a return on equity of 12.0% in the third quarter of 2025 and earnings per share of $3.23, have contributed to the bullish stance.

These developments provide investors with a snapshot of the strong financial performance and strategic moves by Bank of Montreal, making it an attractive option for those looking to invest in the banking sector.