iShares MSCI Emerging Markets Value Factor ETF (EVLU)

The story of EVLU begins with a straightforward question: within the universe of emerging-market stocks, which ones look cheap, and do they outperform over time? This ETF is the answer — a factor fund, a breed of passive tracker that narrows down a broad index by applying a systematic filter for “value” characteristics.

In the late 1990s and early 2000s, as markets globalised and academic research highlighted persistent return patterns, fund managers and index providers realised that they could build indices that isolated specific economic or financial characteristics — low valuations, high profitability, low volatility, strong momentum — and that these characteristics had historically been associated with higher returns. BlackRock’s iShares division, part of the broader iShares ecosystem, developed the MSCI Emerging Markets Value Factor index with MSCI (Morgan Stanley Capital International), a major index provider, to capture emerging-market equities tilted toward value.

How the fund selects its holdings

The fund begins with the MSCI Emerging Markets Index, a broad measure of large and midcap companies across emerging-market economies — roughly 30 countries spanning Asia, Latin America, the Middle East, and Eastern Europe. From that universe, the MSCI Value Factor methodology applies three screens: low price-to-book ratio (a measure of how cheap a stock is relative to its book equity value), high dividend yield, and low price-to-earnings ratio. Companies that rank highest on these value metrics are included; others are excluded. The resulting portfolio is smaller, more concentrated, and tilted toward companies that trade at lower multiples than the broad index.

This is not stock-picking in the traditional sense. A human portfolio manager is not reading annual reports and making judgment calls about whether a company is undervalued. Instead, a mechanical algorithm applies a mathematical formula: if the stock’s price-to-book falls below X, add it; if price-to-book rises above Y, remove it. The fund rebalances periodically (often semi-annually or annually) to maintain the value tilt.

The allure and the pitfall of value factors in emerging markets

Emerging-market stocks have historically offered higher average returns than developed-market stocks, but they also carry higher volatility and country-level political risk. The value factor — the tilt toward cheap stocks — has also been historically associated with outperformance, particularly over long periods. The theory is intuitive: a stock is cheap because the market has mispriced it, and over time the price adjusts upward. EVLU combines both themes: the higher-return potential of emerging markets, plus the historical outperformance of value stocks.

But this is where timing and patience matter. Value factors perform best over decades, not quarters. There are extended periods — sometimes years or even a decade — when growth stocks and expensive stocks outperform cheap ones. The 2010s saw a strong outperformance of technology-heavy, high-growth indices over value-tilted ones. During those years, EVLU would have lagged a broad emerging-market fund. The fund’s discipline, which is its strength (it never deviates from the mechanical value rule), is also its constraint: it cannot abandon the value tilt even when value is out of favour.

Emerging-market valuations have varied widely based on macro conditions. When emerging-market currencies are weak or growth is slowing, equities become cheap; when capital is flowing in and growth is accelerating, they become expensive. The fund’s value tilt is relative to the emerging-market universe, so it buys the cheapest companies in that universe at any given time — but the absolute valuations can vary enormously.

Geographic and sectoral biases

The fund’s country and sector weights shift as companies move in and out of the value universe. At different times it has been overweight to China, Brazil, and India (depending on which countries’ stocks ranked cheap), and underweight to others. Sector weightings shift similarly: when financial stocks are cheap, the fund has been overweight to banks and insurers; when energy is out of favour and cheap, energy companies gain weight.

This is not a problem per se, but it is worth understanding. An investor buying EVLU is not buying a stable, fixed exposure to emerging markets; they are buying an exposure that tilts toward whichever part of the emerging-market universe currently appears cheap. In some periods that works in the investor’s favour; in others, it means buying into sectors and countries that are cheap for good reasons and may get cheaper.

From index inception to today

The MSCI Emerging Markets Value Factor index, which EVLU tracks, was formally launched in the early 2010s as factor-based investing gained academic credibility and became a mainstream tool. The fund itself followed, part of BlackRock’s effort to offer factor-tilted alternatives to its core broad indices. The structure reflects the evolution of passive investing: where once passive meant holding the entire index equally, now it means applying systematic rules to create tilted exposures.

How to research the fund

The prospectus and fact sheet show the fund’s current holdings, sector weightings, and geographic breakdown. Compare EVLU’s long-term returns (over five, ten, and fifteen years) to a broad emerging-market fund (such as VWO, Vanguard’s emerging-market ETF) to assess whether the value tilt has added or subtracted value over your period of interest. Review the fund’s top holdings and sector weights to understand which parts of the emerging-market universe you are gaining exposure to. Read MSCI’s methodology documentation to understand precisely which valuation metrics drive the selection — the rules may shift over time as MSCI refines its factor definitions. Monitor macroeconomic conditions in large emerging-market economies (China, India, Brazil) and track global investor appetite for emerging-market risk; these drive whether the fund’s value exposure looks attractive or depleted relative to the broad market.