An Emerging Markets ETF Soared 50% Without Owning a Single Chinese Stock

Most emerging market ETFs are built around the same assumption: that China’s economy and equity markets will drive returns for decades. Columbia EM Core ex-China ETF (NYSEARCA:XCEM) rejects that premise entirely. This fund excludes Chinese equities altogether, offering investors exposure to emerging markets without the geopolitical risk, currency volatility, and regulatory uncertainty that have defined Chinese markets in recent years.

For investors who believe China’s best days are behind it, or who simply want to diversify away from concentration risk in the world’s second-largest economy, XCEM provides a clear alternative. The question is whether removing China from the equation actually improves returns or just creates a different set of risks.

What XCEM Actually Owns

South Korean semiconductors dominate XCEM’s portfolio, with Samsung Electronics at 6.64%—a reflection of Korea’s dominance in memory chips and the AI boom driving demand. This concentration in Korean tech represents a bet that semiconductor demand will continue to outpace broader emerging market growth, particularly as AI applications expand globally.

The fund’s second major theme is India’s financial sector transformation, anchored by positions in ICICI Bank and other major lenders. These holdings capture India’s digitization wave and credit expansion as the country’s banking system modernizes and reaches previously underserved populations.

The fund maintains a 16.56% cash position, unusually high for an equity ETF. This defensive stance may reflect uncertainty about emerging market valuations or simply recent inflows awaiting deployment. Beyond these core positions, the portfolio reaches into Middle Eastern financials, Taiwanese electronics, and Brazilian industrials, creating a mosaic of ex-China emerging market exposure.

At 0.16% annually, XCEM’s expense ratio is competitive for this level of geographic targeting. The fund has attracted $1.5 billion in assets since its September 2015 launch, suggesting investors see value in emerging market exposure without China’s regulatory uncertainty.

Performance vs. Traditional Emerging Market Funds

The fund returned 49.56% over the past year, driven primarily by its heavy allocation to South Korean semiconductors during the AI boom. This sector concentration allowed XCEM to capture gains that traditional emerging market funds with significant China exposure missed, as Chinese tech companies faced regulatory crackdowns while Korean chipmakers benefited from surging AI-related demand.

Over five years, the performance gap widens even further. XCEM gained 50.83% while iShares MSCI Emerging Markets ETF (NYSEARCA:EEM | EEM Price Prediction) returned just 18.41%. This divergence reflects how China’s regulatory crackdowns and economic slowdown weighed on broader emerging market returns, while XCEM’s ex-China positioning allowed it to avoid these headwinds entirely.

Much of XCEM’s outperformance comes from its heavy weighting in South Korean semiconductors. The iShares Semiconductor ETF (NYSEARCA:SOXX) gained 60.79% over the past year, and XCEM’s exposure to Samsung and SK Hynix allowed it to capture much of that upside.

The Tradeoffs

Excluding China means missing any potential recovery in Chinese equities. If Chinese markets rebound, XCEM will lag. The fund also has significant concentration in semiconductors, which exposes investors to cyclical risk in the chip industry. Finally, the large cash position may be a drag on returns if markets continue to rise.

XCEM works for investors who want emerging market exposure without China’s regulatory and currency risks, but it requires accepting that you may underperform if Chinese equities recover.