NZAC Versus IEMG Is Not the Comparison It Claims to Be

The financial press keeps asking which is the better international ETF: State Street's climate-focused NZAC or iShares' emerging markets IEMG. That question starts from a false narrative. These funds are not interchangeable international exposures. They're not even remotely serving the same allocation role.

Asking which is better is like choosing between a diversified global portfolio and a concentrated bet on developing economies, then pretending the choice is about geography.

Let me decompose what each fund actually is, because the labels do the investor a disservice.

NZAC is not an international ETF — it's a US mega-cap tech fund with a climate filter.

NZAC tracks the MSCI ACWI Climate Paris Aligned Index, which screens the entire global equity universe — developed and emerging — for companies aligned with Paris Agreement temperature targets. The screening underweights high-carbon businesses and tilts toward firms with lower carbon intensity and green revenue exposure.

Here's what that produces in practice. The top holdings are Apple at 4.3%, NVIDIA at 4.2%, Microsoft at 4.1%, Amazon at 2.5%, and Meta at 1.9%. The fund holds 776 positions across technology, financials, energy, and materials. Technology accounts for 171 holdings, the largest sector bucket.

In other words, NZAC's top ten holdings are dominated by US technology companies. The fund has a P/E ratio of roughly 25 times earnings and a dividend yield around 1.5%. Its one-year return sits at roughly 15% to 17%, well behind IEMG's 42% over the same period.

That's not an "international" allocation. That's a broad-market US growth tilt dressed in ESG language.

Then there's the elephant in the room: scale. NZAC manages somewhere between $145 million and $190 million in assets. Average daily trading volume hovers around 10,000 shares. The expense ratio is 0.12% — above IEMG's 0.09%, for a fund that's barely generating enough volume to trade without slipping. In my opinion, a sub-$200 million ETF with single-digit-thousand daily volume is functionally undecidable as a core holding. The bid-ask spreads alone eat into returns on any meaningful position.

IEMG is an emerging markets fund — and that's actually the point.

IEMG tracks the MSCI Emerging Markets Investable Market Index across roughly 2,874 securities. It has $160 billion in assets, massive liquidity, and a 0.09% expense ratio that's 83% below the category average. The dividend yield is 2.2%, notably higher than NZAC's.

The geographic exposure is where the real story lives. China represents roughly 25% of the fund. Taiwan Semiconductor Manufacturing is the single largest holding at 12.7%. Samsung Electronics adds another 7%, and SK Hynix contributes 5.5%. The MSCI classification includes South Korea as an emerging market, giving IEMG heavy exposure to the Korean semiconductor stack — Samsung, SK Hynix — which has been a major return driver in 2025 and 2026.

Technology dominates at 42% of sector weight. Financial services adds 17%. Consumer cyclicals make up 9%. The fund's one-year return of 42.5% reflects a powerful convergence: Korean semiconductor exposure catching the AI infrastructure buildout, Chinese tech rebounding from 2024 lows, and Indian growth stories gaining momentum as capital rotates away from China-concentrated positions.

The China problem

IEMG's 25% China weight is both the fund's return engine and its geopolitical overhang. That's the structural counterargument to the emerging markets bull case. US-China tensions, regulatory unpredictability in Beijing, and the growing push toward supply chain diversification all create downside that isn't captured in the index methodology. The fund does what it's supposed to do — it's market-cap weighted, and China is the largest emerging economy. But market-cap weighting means you own the geopolitical risk whether you want to or not.

The market has responded by surging ex-China EM funds like EMXC and VEXC in 2026, as investors redirect capital toward India, Taiwan, and Brazil. India-focused INDA delivered roughly a 40% one-year return, driven by the country's position as an anti-China manufacturing alternative. That rotation tells you the market is already pricing in the China risk premium.

What the comparison gets wrong

NZAC doesn't solve the China problem either. Its climate screening doesn't filter for geopolitical risk. It filters for carbon intensity. If you're worried about owning a quarter of your EM allocation in Chinese equities, NZAC's Paris-aligned screen isn't the answer. It's a different screen entirely.

And NZAC doesn't give you higher yield. Its 1.5% dividend yield is below IEMG's 2.2%, and well below what income investors need to justify equity risk. The fund's 25x P/E multiple is growth-territory pricing on a fund that calls itself climate-focused. That disconnect — high valuation multiples, thin yield, US mega-cap concentration, wrapped in a sustainability narrative — is the false narrative at work.

So which one do you actually want?

The answer depends on what allocation problem you're trying to solve.

If you need genuine international exposure beyond the US dollar economy, IEMG is the functional choice. It's liquid, cheap, and captures the full emerging market universe. The China concentration is a known risk, not a secret one. For investors who can tolerate that geopolitical overhang, the Korean semiconductor exposure provides a direct link to AI infrastructure spending — cross-pollination where hyperscaler capex drives Samsung and SK Hynix revenue just as it drives NVIDIA and Broadcom. That's real structural demand, not a narrative.

If you're trying to build a climate-aligned global portfolio and NZAC is what came up in your screen, I'd look harder. The fund is too small, too thinly traded, and too US-technology-concentrated to serve as a meaningful climate play. Its expense ratio is higher than a plain-vanilla global index fund, and the Paris-aligned screening has delivered a return profile that looks more like a US growth index with slightly lower volatility — a 5-year max drawdown of 28.3% versus IEMG's 35.8%, but that's a function of NZAC's US tech weighting, not its climate filter.

My view

IEMG gets the Buy as an international allocation tool, with the caveat that the China weight demands active monitoring. The fund's 2.2% yield, $160 billion scale, 0.09% expense ratio, and direct exposure to the AI hardware supply chain in South Korea make it a structural holding worth owning. The Korean semiconductor names — Samsung, SK Hynix — are not cyclical afterthoughts. They're positioned to benefit from the ongoing memory and advanced packaging demand that AI training and inference workloads require.

NZAC doesn't earn a rating as a functional holding. It's a climate-screened US tech fund masquerading as a global solution, priced like growth, yielding like nothing, and trading like a shadow of itself. The Paris-aligned screening is conceptually sound but operationally irrelevant at this scale. For investors who want climate exposure, a larger, more liquid climate ETF from the same provider or a plain-vanilla global fund with a separate sustainable allocation makes more sense.

The real lesson here isn't about choosing between two ETFs. It's about reading what the labels don't tell you. "International" means something very different when your top holdings are Apple and NVIDIA than it does when they're TSMC and Samsung. Know which one you're buying.

For investors who need genuine diversification away from US-listed companies and can stomach the China overhang, IEMG is the tool. For everyone else looking at this comparison, the answer is to rethink the premise.