Global Climate ETF or Emerging Markets: Which Has Better Returns?

The State Street SPDR MSCI ACWI Climate Paris Aligned ETF (NZAC 1.37%) and the** iShares MSCI Emerging Markets ETF** (EEM 0.61%) differ most in geographic focus, expense ratio, and risk profile—NZAC is a climate-conscious global fund, while EEM concentrates on emerging markets and carries higher costs and volatility.

Both NZAC and EEM seek to provide broad equity exposure, but with distinct approaches: NZAC blends developed and emerging markets with an ESG overlay, while EEM zeroes in on large- and mid-cap stocks from emerging economies. This comparison highlights how cost, performance, risk, holdings, and portfolio makeup may influence investor preference between these two ETFs.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months.

EEM comes with a much higher annual fee than NZAC, but it also offers a slightly higher dividend yield. For cost-conscious investors, NZAC may look more affordable, while EEM appeals to those prioritizing yield and exposure to emerging markets.

Performance & risk comparison

What’s inside

EEM focuses exclusively on emerging markets, holding 1,223 stocks with a heavy allocation to technology (34%) and financial services (19%), and a noticeable presence in consumer cyclicals (9%). Its top holdings include Taiwan Semiconductor Manufacturing (2330.TW), Samsung Electronics Ltd (005930.KS), and Tencent Holdings Ltd (0700.HK), making it heavily tilted toward Asian tech giants. EEM has a 23-year track record and deep liquidity, but does not apply ESG screens or climate mandates.

In contrast, NZAC tracks a climate-aligned version of the MSCI ACWI index, blending developed and emerging markets with an ESG screen that aims to reduce climate risks and capture sustainable opportunities. Its portfolio is led by Nvidia Corp (NVDA 1.90%), Apple Inc (AAPL 1.41%), and Microsoft Corp (MSFT 1.88%), with technology, cash & others, and financial services as the top sectors. This focus may appeal to investors seeking a global, climate-conscious approach with broad diversification.

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What this means for investors

These two ETFs are both solid options for investors looking to diversify internationally and into emerging markets. International and emerging market stocks have outperformed their U.S. counterparts over the past year, and that outperformance is expected to continue as investors rotate out of overvalued U.S. large-cap stocks into other investment types to better diversify their portfolios.

If you are a climate-conscious investor, the State Street ETF would likely be the preferred choice. But even if you are just looking for the best returns, you may want to opt for the State Street ETF.

It holds fewer stocks than the iShares option, about 673, but it is still well-diversified with stocks from more than 40 countries represented. But the most, about 64%, are from the U.S. Further, roughly 31% of the portfolio is in tech stocks, while 17% is in financials. Nvidia (NVDA 1.90%), Apple (AAPL 1.41%), and Microsoft (MSFT 1.88%) are the three largest holdings.

The iShares ETF has far outperformed the State Street ETF over the past 12 months, with a return of 24% to 9% for the State Street ETF. But the State Street fund owns the edge over the three-, five-, and 10-year periods.