Emerging market funds are popular with investors for a number of reasons – access to a growing part of the world, the opportunity to get outsize gains and diversification.

But does your emerging market fund cover what you think it does, and is it really diversified from other holdings? Maybe not. As these markets become a bigger part of the global economy, what is considered "emerging" varies depending on the index a fund follows. Plus, emerging markets aren't static, and over time new countries are included in the mix. Even globalization poses a dilemma by diluting the diversification benefits of investing in developing markets. As a result, the effect on your portfolio may not be what you expect.

[See: 7 Blended ETFs to Own for a Diversified Portfolio .]

The South Korea question. For example, in the exchange-traded-fund world, opinions differ on how to classify South Korea. Some index providers, like FTSE Russell, consider South Korea a developed market and don’t include it in their emerging markets indexes. One of the biggest exchange-traded funds that follows the FTSE index is Vanguard Emerging Market (ticker: VWO ), so it doesn’t include South Korea in its holdings.

In contrast, two competitors of the Vanguard fund, iShares Core MSCI Emerging Markets ETF ( IEMG ) and iShares MSCI Emerging Markets ETF ( EEM ), follow the MCSI Emerging Market Investable Market Index, which designates South Korea as an emerging market.

This distinction is a big deal, says Todd Rosenbluth, senior director of ETF and mutual fund research for CFRA in New York. He notes South Korea makes up 15 percent of the iShares ETFs. Because the Vanguard fund doesn’t include South Korea, it has greater exposure to India, Brazil and other countries, he says.

That makes it more important than ever for investors to read the fund's prospectus, understand the holdings and recognize how the index provider classifies certain countries, says Ben Johnson, director of global ETF research at Morningstar. “Investors should be looking at [index composition] when they're popping the hood on these different funds and trying to understand what exactly is the exposure they're getting and just how well it matches what their impression was when they were looking at the label on the fund,” Johnson says.

Saudi Arabia's potential change in status. New players can also alter an index. Last summer MSCI said it was considering upgrading Saudi Arabia's status to emerging market and adding it to the index, with the decision expected in June. FTSE may follow suit later this year after declining to upgrade the country's status in 2017.

The upgrade could be significant as Saudi Arabia plans to take its privately held oil company, Aramco , public. “MSCI's suite of products and the others are market-cap weighted,” Rosenbluth says. “Depending upon how that company (Aramco) is priced and what the value of the market capitalization ends up being, it could play a meaningful role within the portfolio.”

One effect: The sector allocation could shift in some funds. For instance, Rosenbluth says, the current sector allocation to energy in IEMG is 6.7 percent. That’s similar to the 6 percent weighting in the SPDR S&P 500 ETF Trust ( SPY ), the largest U.S. broad-based stock fund. Like many U.S. funds, emerging market funds tend to be heavily weighted toward technology and financial services companies. “The inclusion of an energy company, regardless of what the weight is, could be significant,” he says.

[See: 7 of the Best Energy Stocks to Buy for 2018 .]

The globalization factor. While emerging market funds diversify with countries, the global nature of business is changing what that diversification means.

On the one hand, firms domiciled in an emerging market are becoming more integrated into the global economy. On the other, big U.S.-based firms like Apple ( AAPL ) derive an ever-larger portion of their revenue and ultimately their earnings from emerging markets . “Globalization means that these firms are increasingly driven by shared factors, to the extent that when they zig and zag, they tend to zigzag more so in sync than against one another,” Johnson says.

What diversifying with emerging markets doesn't do is protect investors from market downdrafts at home. “One of the unfortunate lessons we've learned is that the kind of diversification you're really looking for, which is if the U.S. market is going down might these investments be going up, just hasn't materialized," says Tim Courtney, chief investment officer at Exencial Wealth Advisors in Oklahoma City.

A different mindset for investors. That’s why investors need to consider the sector allocations of their funds as much as they do the countries those funds invest in.

Rosenbluth says emerging markets did well in 2017 because globally technology outperformed, and many emerging market funds are heavy in technology. “If an investor is concerned about the tech weighting within the U.S. part of their portfolio and feel like they're overly exposed to technology, then they should similarly be conscious of the exposure in their non-U.S. part of the portfolio as well,” he says.

Still, Courtney says emerging markets play a worthwhile role in an average investor’s portfolio as they can provide a higher return. He notes from January 2000 through January 2018, the S&P's annualized total return was 5.7 percent, while the MSCI Emerging Markets index was 8.17 percent.

Investors may want to consider how emerging markets offer exposure to different currencies , not just stocks. Courtney thinks funds with foreign currency exposure can diversify a portfolio, particularly as emerging markets become a greater part of the world’s economy.

[See: 7 Emerging Market ETFs to Buy Now .]

Although Courtney isn't predicting what the dollar will do, he says the longer-term trend for the dollar has been to lose about half a percent a year in value, which is a good reason to have currency diversification. “You should want access to those other currencies and not have such a dollar-centric portfolio,” he says.

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