Touchstone Sands Capital Emerging Markets ex-China Growth ETF (TEMX)

The Touchstone Sands Capital Emerging Markets ex-China Growth ETF (TEMX) is an actively managed fund that selects growth-focused stocks from emerging markets outside China—a deliberate exclusion of the region’s largest economy in favour of smaller emerging economies and firms with faster earnings growth. The fund is smaller and more specialized than broad emerging-market ETFs, appealing to investors who want emerging-market growth without the concentration in a single country or the value-tilted approach of larger peers.

The thesis: emerging markets without China

China dominates any broad emerging-market index by weight, often accounting for 30% or more of the total. Some investors view this as obvious—China is large and growing. Others see a concentration risk: owning broad emerging markets becomes a bet on China policy, China growth, and China regulation. TEMX sidesteps that by excluding China entirely, redirecting the portfolio toward emerging markets that are smaller individually but collectively rapid-growing: India, Indonesia, Vietnam, the Philippines, Brazil, Mexico, and others.

The fund’s active-management approach adds a second layer of selectivity: within those ex-China markets, the Sands Capital team selects stocks they believe will experience above-market earnings growth. This is not a value approach (buying cheap stocks) or a quality approach (buying durable moats), but a growth approach: finding companies that are likely to expand revenues and profits faster than the broader market over a 3-to-5-year period.

What this fund actually owns

TEMX’s portfolio leans toward mid-cap and smaller-cap stocks—companies often overlooked by the largest international fund managers. In India, that might mean fintech disruptors, rural e-commerce platforms, or infrastructure-software firms. In Southeast Asia, it might include regional tech platforms, logistics and supply-chain businesses, or consumer companies benefiting from rising incomes. In Brazil and Latin America, it might hold commodity-linked exporters with improving margins, financial-services innovators, or consumer-discretionary firms.

Because the fund is actively selected and growth-focused, it will look very different from a passive emerging-markets-ex-China index. The Sands Capital team may own small-cap and micro-cap positions that a larger, more conservative fund would never touch. That concentration and illiquidity create upside potential when those smaller companies take off, but they also create downside risk if sentiment turns against emerging-market growth or if any single holding stumbles.

Growth-stock volatility in emerging markets

Growth stocks are inherently more volatile than value stocks or broad market indexes. A company with fast earnings growth carries higher expectations; when those expectations slip, the stock falls hard. Add emerging-market volatility—currency swings, political uncertainty, commodity shocks—and you get an asset class that can experience sharp, sudden drawdowns.

TEMX is less stable than broad emerging-market ETFs and far less stable than developed-market equity ETFs. A 30% to 40% decline in a single year is possible when sentiment turns against emerging-market growth. An investor holding TEMX must be comfortable with that volatility and have a time horizon of at least three to five years; shorter time horizons make the volatility unmanageable.

Fee and tracking costs

TEMX’s active-management fees are material, reflecting the cost of research analysts covering smaller, less-well-known emerging-market companies. The team’s value-add argument is that they identify fast-growing companies before the crowd does, leading to outperformance that justifies the fee. In practice, predicting which small-cap emerging-market stocks will deliver the fastest growth is notoriously difficult, and many active funds underperform simple passive alternatives even before accounting for higher fees.

Who this fits

TEMX appeals to investors who hold a view that emerging-market growth outside China is underappreciated, who can tolerate substantial volatility, and who believe active stock-picking can identify winners. It is inappropriate for conservative investors, for anyone with a short time horizon, or for investors seeking broad emerging-market exposure at low cost.

The fund works best as a satellite position within a larger emerging-market allocation—a concentrated bet on the fastest-growing emerging markets for an investor who has the conviction and risk tolerance to back it. Combined with a core holding in a broad emerging-market index fund, it can add diversification from China concentration while introducing specific growth-stock risk.

Research and monitoring

Read the prospectus and factsheet to understand the fund’s current top holdings and geographic allocation. Check T. Rowe Price’s or Sands Capital’s latest investment letter for their perspective on growth in emerging markets ex-China and which regions and sectors they favour. Monitor the fund’s performance against the MSCI Emerging Markets ex-China Index and against other emerging-market growth funds to gauge whether the active selection is working. Keep an eye on emerging-market currency moves and sentiment—sudden dollar strength or flight-to-safety episodes hit emerging-market growth stocks hard.