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Summary Investing for retirement can be as simple or as complex as you want to make it. One well diversified global ETF with a low expense ratio is a good start. Given the relative under-performance of emerging markets over the last five years, now might be a good time to add exposure to emerging market equities to your retirement portfolio. This article reviews VWO, an ETF that can be added to the core portion of most investors’ portfolios to increase exposure to emerging market equities. Simply Investing – Philosophy Keep investing simple, consistent, diversified and low cost and you will significantly increase your chance of success. One well diversified global ETF with a low expense ratio is all that is required for many people starting to invest in equities, and an ETF that meets these criteria is the Vanguard Total World Stock ETF (NYSEARCA: VT ). As an investor’s experience, time dedicated to investing activities and desired risk, increases, many investors add ETFs to the core of their portfolio to gain exposure to new areas or increase exposure to areas that the investor believes will outperform. The next step for many investors is to allocate a percentage of their portfolio to “edge” positions, which offer additional risk and opportunity. Vanguard FTSE Emerging Market ETF (NYSEARCA: VWO ) This article reviews VWO, an ETF that can be added effectively to the core portion of most investors’ portfolios to increase exposure to emerging market equities. VWO – Investment Synopsis VWO’s objective is to closely track the return of the FTSE Emerging Markets All Cap China A Transition Index. VWO invests in stocks of companies located in emerging markets around the world, such as China, Brazil, Taiwan, and South Africa. VWO has high potential for growth, but also high risk. VWO is only appropriate for long-term goals and a small proportion of an investor’s retirement portfolio. VWO performance compared to the S&P 500 (click to enlarge) Source: Yahoo Finance (12/7/2015) As the chart above shows, the S&P 500 has significantly outperformed VWO over the last five years. There are a number of reasons for this including the relative strength of the U.S. economy and the U.S. dollar compared to emerging market economies and currencies. While the out-performance of the U.S. market may continue for some time, after such an extreme period of under-performance by emerging market stocks, now might be a good time to start building or add to a core position in emerging market stocks in anticipation that this under-performance will, at some point, at least partially reverse itself. VWO -Equity Characteristics Source: Vanguard (as of 10/31/2015) As the table above indicates, VWO is well diversified, holding 2,560 stocks. The median market cap is large at $14.9 billion. VWO’s current price/earnings ratio at 16.0 is high compared to historical levels but quite a bit lower than that of the U.S. market as emerging markets have underperformed the U.S. market for several years, as shown in the previous chart. VWO – Top 10 Holdings Source: Vanguard (as of 10/31/2015) VWO’s top ten holdings are very large companies and at 18.1% of total net assets, make up a fairly large proportion of the total holdings. VWO – Country Diversification Source: Vanguard (as of 10/31/2015) Chinese and Taiwanese companies together make up 42.5% of the holdings of VWO. Some investors may not want to concentrate their emerging market exposure in these two countries. Expenses and dividend yield VWO’s expense ratio is 0.15%, this is well below the average expense ratio of similar funds at 1.53%. Given the relatively high price of the global equity markets today and particularly the U.S. markets, it is likely that future returns, at least for U.S. markets, may be lower than those recently experienced. In this environment, it is important that the core of your portfolio is allocated to funds with low expense ratios like VWO. VWO’s forward looking dividend yield is 3.23% based on the last four quarters distributions. Vanguard Emerging Markets Stock Index Fund and ETF moves to transition index One further consideration for potential investors in VWO is that on November 2, 2015, VWO began tracking a new FTSE transition index that over time will build exposure to small-capitalization stocks and China A-shares. The transition index will be used for approximately one year to reduce the costs associated with trading large amounts of securities in a short period. The fund will sell large-cap and mid-cap stocks on a monthly basis while proportionally adding exposure in China A-shares and small-cap ex China A-shares based on each security’s weight in the index. At the end of the transition period, the fund will begin tracking the FTSE Emerging Markets All Cap China A Inclusion Index. Given this recent change and we are in the midst of a transition period, VWO may not be an appropriate investment for all investors looking for emerging market exposure. Other Emerging Market ETFs Above is a list of the top 10 emerging market ETFs, listed by assets under management (AUM). For those that want to do further research, additional detail on these ETFs is available on Seeking Alpha’s ETF Hub. Conclusion Your chance of long term investment success increases significantly by keeping your investing simple, consistent and well diversified. Most investors would benefit by building a core position in a well diversified global ETF with a low expense ratio like Vanguard Total World Stock ETF . After establishing this core position, well diversified, low cost, emerging market ETFs like VWO can increase your exposure to emerging markets for those investors looking to do so.