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Friday, February 18, 2011

Emerging Market ETFs: VWO Takes the Lead

There’s a new leader in the battle of the emerging market exchange traded funds (ETFs).

On Jan. 18, the iShares MSCI Emerging Index Fund (NYSEArca: EEM) dropped to $46.36 billion in assets while Vanguard Emerging Markets ETF (NYSEArca: VWO), which rolled out two years fter EEM, hit $46.47 billion in assets, reports Olivier Ludwig for IndexUniverse. VWO was also the most popular U.S.-listed ETF in 2010, bringing in $19.34 billion.

Two reasons are attributed to VWO’s gain to fame. VWO has an expense ratio of 0.27%, as compared to EEM’s expense ratio of 0.69%. While both EEM and VWO are based MSCI Emerging Markets Index, which returned about 20% over the last year, VWO performed at 18%, whereas EEM returned 15.5%.

VWO uses a replication strategy that holds more securities than EEM to better mimic the underlying index. Still, EEM traders enjoy using the fund due to its turnovers. For instance, EEM had turnover of $726.66 billion last year alone, compared to $164.54 billion for VWO, which suggests that VWO attracts greater buy-and-hold investors.

Other notable broad emerging market ETFs include:
  • SPDR S&P Emerging Markets ETF (NYSEArca: GMM), which has $237.8 million in assets and a 0.59% expense ratio.
  • Schwab Emerging Markets Equity ETF (NYSEArca: SCHE), which has $312.9 million in assets and an expense ratio of 0.25%.
  • PowerShares FTSE RAFI Emerging Markets Portfolio (NYSEArca: PXH), which has $543.5 million in assets and an expense ratio of 0.85%.
Disclosure I am long VWO shares.

1 comment:

  1. Most emerging markets are overvalued with the exception of china.