Emerging Markets (EM) offer a critical component to any globally diversified portfolio: **higher growth potential** and a low correlation to the U.S. market. The two most popular ETFs to access this space are **IEMG (iShares Core MSCI Emerging Markets ETF)** and **VWO (Vanguard FTSE Emerging Markets ETF)**.
Choosing between them is less about performance and more about a single, crucial detail: **How do they classify South Korea (한국)?** This manual breaks down the core index difference and helps you decide where your diversification money should go.
The Index War: MSCI vs FTSE
The difference between IEMG and VWO comes down to their underlying index providers.
1. IEMG (MSCI Index)
IEMG tracks the MSCI Emerging Markets Index. MSCI still classifies **South Korea** as an Emerging Market. This means IEMG includes major South Korean stocks, which significantly increases its exposure to technology (Samsung, etc.).
2. VWO (FTSE Index)
VWO tracks the FTSE Emerging Index. FTSE classifies **South Korea** as a Developed Market. Therefore, VWO does not hold South Korean stocks. This gives VWO a lower exposure to developed-nation volatility and a higher weighting in "purer" emerging economies like India and Brazil.
Comparison Matrix (IEMG vs VWO)
The lower cost option is clear.
| Feature | IEMG (iShares) | VWO (Vanguard) |
|---|---|---|
| Index Provider | MSCI | FTSE |
| South Korea Incl. | Yes (Emerging) | No (Developed) |
| Expense Ratio | 0.11% | 0.08% (Lower Cost) |
| Verdict | Best for Tech/MSCI Users | Best for Low Cost/Pure EM |
The Verdict: VWO for Lower Fees, IEMG for Tech Exposure
Scenario A: You prioritize the absolute lowest fee → Choose VWO
Vanguard is the Low Cost leader for a reason. VWO is cheaper and offers a purer play on the developing world, as South Korea is a powerful economy and some argue it shouldn't be in the EM bucket.
Scenario B: You already own an MSCI World ETF → Choose IEMG
If your U.S. or Developed Markets holdings track an MSCI index, choosing IEMG ensures smooth total diversification because the MSCI index family handles the South Korea classification consistently across all its funds.
Conclusion: VWO is the Default Choice
For most investors starting their global diversification, **VWO** offers a lower expense ratio and a more concentrated exposure to the high-growth nations that truly define "Emerging Markets."
