Why hold emerging markets in a pension?
Emerging markets - China, India, Taiwan, Brazil, South Korea and others - are home to a large and growing share of the world's population and economic output, yet they make up only around 10% of global stock indices. The argument for holding them is faster long-run growth and diversification away from US and European mega-caps. The trade-off is higher volatility, currency risk and weaker corporate governance in some markets.
Because a global tracker already includes some emerging markets, a dedicated fund is best used as a deliberate "tilt" to increase your exposure, not as a core holding.
Low-cost emerging markets pension funds in 2026
| Fund | OCF | Holdings | Notes |
|---|---|---|---|
| Fidelity Index Emerging Markets | 0.20% | ~1,200 | Cheapest broad tracker |
| iShares Emerging Markets Equity Index | 0.21% | ~1,400 | Wide market coverage |
| Vanguard Emerging Markets Stock Index | 0.23% | ~5,500 | Includes small caps |
| L&G Global Emerging Markets Index | 0.30% | ~1,000 | Widely available in SIPPs |
| HSBC FTSE All-World (for built-in EM) | 0.13% | ~3,600 | ~10% EM, no separate fund needed |
For pure emerging markets exposure, Fidelity Index Emerging Markets and iShares Emerging Markets Equity Index are the cheapest broad trackers. The Vanguard option casts the widest net by including thousands of smaller companies. If you do not want a separate holding, a global fund like HSBC FTSE All-World already gives you roughly 10% emerging markets at a lower cost.
How much should you allocate?
- Cautious: rely on the ~10% already inside a global tracker - no extra fund needed.
- Moderate tilt: add 5% in a dedicated EM fund to lift total exposure to around 15%.
- Aggressive, long horizon: up to 15% in a dedicated fund, accepting sharp swings.
Emerging markets can fall 30% or more in a bad year, so they only suit pensions with a long time to retirement and a stomach for volatility. Avoid single-country funds (such as China-only) for a core pension - they concentrate risk dangerously.
Why emerging markets behave differently
Emerging markets do not simply amplify developed-market moves - they march to their own drum. Their performance is driven heavily by the US dollar (a strong dollar tends to hurt them), commodity prices, and Chinese economic policy, since China dominates the index. This means emerging markets can lag developed markets for years, as they did through much of the 2010s, then surge when conditions turn. That low correlation is precisely why a small allocation can improve a portfolio's overall risk-adjusted return, even though the asset class is volatile in isolation.
The China question
China makes up a large slice of any broad emerging-markets index, which worries some investors given its regulatory crackdowns and geopolitical tensions. You have three choices: accept the standard weighting in a broad tracker, choose an "ex-China" emerging-markets fund that deliberately excludes it, or hold a separate China position to control the exposure precisely. For most pension savers using emerging markets as a small satellite, the standard broad tracker is simplest - the China weighting is diluted across the rest of your portfolio anyway.
Verdict
The best emerging markets pension fund in 2026 is Fidelity Index Emerging Markets or iShares Emerging Markets Equity Index - both broad, cheap and diversified. Use them as a small satellite of 5-15%, not a core holding, and only if retirement is years away. Compare the global core in best global pension fund, weigh it against pure growth in best pension fund for growth, and model the risk with our pension calculator.