Investors perusing the offerings in the diversified emerging-markets Morningstar Category will notice a number of strategies that completely avoid the biggest of those markets: China. A few are “frontier market” portfolios that bypass all the larger countries. But there’s a swath of emerging-market funds that make a point of excluding only China.
“Ex-China” strategies have been around for a while. At first, a key selling point was their ability to help investors avoid overexposure to that market. In the years before 2020, China’s weighting in the most widely followed benchmark, the MSCI Emerging Markets Index, had risen steadily. It soared to more than 40% before covid struck.
Starting in 2021, another justification appeared: lousy performance. China’s stock market entered a multiyear stretch when it trailed the broader emerging-market universe. Among the culprits: a widespread malaise in the property market, a government crackdown on online-education and technology firms, and lackluster consumer spending.
However, by 2024, both incentives to choose an ex-China fund had diminished. Owing to its stock market slump, China’s share of the index was no longer as outsize as it had been.
More positively, Chinese stocks began a healthy rebound that continued through 2025.
Recently, a couple of those ex-China funds gave up and liquidated. Given this scenario, that’s no surprise. What’s curious is why all the others still exist—and why new ones appeared in 2025. There are several reasonable answers—none of them being an unwise desire to time the market.
Tough to Get Noticed
A few ex-China funds have lengthy histories, but many are of more-recent vintage. Eight were launched in 2022, with 16 more over the next three years. (Although these figures include only the funds domiciled in the US, ex-China funds are a global phenomenon, as discussed in a Morningstar study published last year by my colleague Mathieu Caquineau.)
There hasn’t been a stampede toward the newer offerings. In fact, about two-thirds of the assets of the US-based ex-China group lie in a fund that’s been around since 2017: iShares MSCI Emerging Markets ex China ETF EMXC. That passive vehicle has around $17 billion in assets. Only three other ex-China offerings have more than $1 billion; all of them also appeared long ago, between 2015 and 2019.
By contrast, among the 2022-and-later crowd, the biggest asset base, owned by Avantis Emerging Markets Ex-China Equity ETF AVXC, is just $277 million. Most of the others are far below that level.
A Tough Sell
It’s understandable why the recent crop has failed to attract many assets.
First, it’s doubtful that many investors think China’s market will lag its peers indefinitely. And even China pessimists who concede it’ll bounce back sometime would have to be confident they’d know when to jump back in—a daunting task.
Second, an emerging-markets ex-China fund has a limited palette. Few other emerging markets are big and robust enough to absorb a ton of money while providing a reasonable amount of liquidity. The iShares fund that dominates this group has 70% of its assets in just three markets: Taiwan, South Korea, and India.
Third, owning an ex-China fund doesn’t necessarily insulate an investor from exposure to that country. Many companies around the world rely on China’s factories to manufacture their products or on China’s consumers to buy them.
That Said …
With sound reasons to ignore ex-China funds, and with few investors apparently interested in the younger ones, why do the funds with minimal asset bases still exist? And why do a handful of the older ones still boast a decent amount of assets?
Some shareholders might be trying to time the market. That’s not recommended. But there are at least three other, more justifiable reasons for owning an ex-China fund.
Certain investors may have human rights concerns or consider China to be a current or potential adversary to the United States. These investors don’t necessarily believe that avoiding Chinese stocks will help them outperform. It simply suits a deeply held personal preference.
For others, legal issues play a role. In recent years, some US states have passed legislation prohibiting state agencies from investing in China. For officials in these states, the vast majority of emerging-market funds are off-limits. An ex-China fund offers a reasonable, if not ideal, way to maintain exposure to that asset class.
Finally, institutional investors might be content to delegate the bulk of their emerging-market exposure to an index or outside fund manager but prefer to decide for themselves—assisted by their own manager on-site—how big a weighting to assign to China and which stocks to include.
If You Indulge, Choose Carefully
No matter their motivation, investors considering ex-China funds should examine the options carefully before diving in. These portfolios are far from identical.
Most critically, ex-China funds can define their universe in different ways. Those distinctions can have a huge impact on portfolio weightings and performance.
For example, the index tracked by State Street SPDR Emerging Markets Ex-China ETF XCNY considers South Korea to be a developed market rather than an emerging one. No Korean stocks appear in its portfolio. As a result, it has about 60% of its assets in just two markets: Taiwan and India. By contrast, Matthews Emerging Markets Ex-China Active ETF MEMX has 24% of assets in Korea, with Taiwan and India combined getting just 34%.
WisdomTree True Emerging Markets XC goes a step further than the State Street fund; it excludes Taiwan as well as China and Korea. The impact of this decision extends beyond country weightings. According to Morningstar’s classifications, the WisdomTree fund has a mere 4% of assets in the technology sector. The State Street fund has 33% there.
Not surprisingly, such wildly divergent portfolios can have quite an impact on performance. In 2025, funds lacking the red-hot technology stocks in Korea and Taiwan suffered in comparison to peers.
The Future of Ex-China Funds
China’s stock market has faltered in the turmoil of early 2026, while Taiwan, South Korea, and Brazil have surged. In February, the iShares ex-China ETF received its biggest net inflows since October 2024. If these stock market trends continue, it could spark further interest in ex-China offerings. New ex-China funds could appear.
But even if China’s market revives and embarks on an extended rally, ex-China funds aren’t likely to disappear. As discussed above, avoiding the prospect of weak returns from that country isn’t the only reason an investor might want to own one.
That said, if some of the younger, smaller ones continue struggling to attract assets, the asset managers running them may decide it’s no longer worth the trouble. In short, while the future of the ex-China concept might be assured, not every ex-China fund will be around to enjoy it.
Editor’s Note: Manager research analyst David Carey and manager research associate Emerson Smith provided graphics assistance for this article.