State Street SPDR S&P Emerging Markets ex-China ETF (XCNY)

The State Street SPDR S&P Emerging Markets ex-China ETF (XCNY) owns companies from fast-growing countries around the world — places like India, Brazil, and Mexico — but deliberately leaves out China. It lets investors bet on developing economies without the concentration risk or the geopolitical questions that come with heavy China exposure.

Why ex-China?

Emerging markets are nations that are developing faster economically than rich countries. They tend to have younger populations, lower labor costs, and faster revenue growth than mature markets like the United States or Europe. But emerging markets as a group are usually lumped together with China, which is by far the largest emerging economy. That concentration bothered many investors for two reasons.

First, China’s size means that a typical emerging-market fund is often 30% China or more. So when you buy an emerging-markets fund, you are really buying a China fund with emerging-market countries as a side dish. For investors who wanted emerging-market exposure specifically — say, India’s growth or Mexico’s demographics — but who had concerns about China’s political system, its property crisis, or tensions with the West, that concentration was a problem.

Second, China’s regulatory environment is unpredictable. Beijing can crack down on entire industries overnight, as it did with tech and education companies in recent years. Investors worried about sudden losses from policy shifts wanted the option to exclude China entirely. XCNY exists for exactly that reason.

What the fund holds

XCNY holds stocks from the S&P Emerging Markets ex-China Index, which is just what it sounds like: all the major publicly traded companies from fast-growing countries except China. The list includes India (the most populous country on Earth and a major software and outsourcing hub), Brazil (Latin America’s largest economy), Mexico (the manufacturing heartland of North America), South Korea (electronics and semiconductors), Taiwan (essential chips and electronics), and dozens of smaller countries. The fund owns hundreds of stocks to spread risk.

The companies range from big banks and oil companies to telecom firms, retailers, and manufacturers. They are the household names of their own countries — companies that matter locally but that many Western investors have never heard of. XCNY essentially lets a U.S. investor own a piece of economic growth outside the developed world without needing to study individual foreign companies.

Growth and risk

Emerging-market economies grow faster than mature ones on average. That faster growth can translate into faster corporate earnings growth and higher stock returns over time. But it comes with trade-offs. These economies are more affected by swings in commodity prices, changes in global trade, and shifts in foreign investment. When fear rises, money flees emerging markets and rushes into safe assets like U.S. Treasury bonds. So XCNY’s price tends to be volatile, especially in downturns.

Currency risk matters too. XCNY holds stocks denominated in many currencies — Indian rupees, Brazilian reals, Mexican pesos, and so on. When those currencies weaken against the dollar, XCNY’s value (measured in dollars) falls even if the underlying stocks hold their ground. That adds a layer of volatility on top of the stock risk.

Geopolitical risk is another factor. Many emerging-market countries have less stable governments or legal systems than the United States. Politics, wars, or policy shifts can hit stock markets hard. The exclusion of China removes one major source of that risk, but others remain — political changes in India, economic turmoil in Brazil, or supply-chain disruptions that affect Mexico’s manufacturing base.

Who buys XCNY and why

Long-term investors with a 10-year or longer horizon often own emerging-market funds because they believe that fast-growing economies will produce better returns than slow-growing rich ones. Younger investors or those with high risk tolerance can stomach the volatility. Some investors allocate a fixed slice of their portfolio to emerging markets as a diversification play — the belief that when U.S. stocks are down, emerging markets might be up, or vice versa.

For investors who had a strong emerging-market allocation but wanted to avoid China, or who wanted to take a stand against China’s political system, XCNY offered a cleaner way to do that than owning dozens of individual stocks. It is also a practical tool for financial advisors and professionals who manage diversified portfolios and need a simple way to express a view on non-China emerging markets.

How to evaluate it

Check how many countries and how many stocks XCNY holds. More diversification is generally safer. Look at the expense ratio — the annual cost to own the fund — and compare it to other emerging-market funds. A fee that is 0.1% per year is very cheap; one that is 0.7% or more is pricey. Read the fact sheet to see which countries make up the bulk of the fund. If half the fund is India and you are nervous about India’s government, XCNY might not be right for you.

Watch the fund’s performance relative to the broader emerging-markets index, which includes China. If XCNY is trailing the broader index by a lot, you are paying a price for the China exclusion. Think about whether that price is worth the peace of mind of not owning Chinese stocks. For some investors it is; for others it is not.