Broad-based, cap-weighted ETFs were the way to play emerging markets over the past decade. But it’s time for investors to become more strategic and look beyond VWO and EEM.
Investors in the broad-based emerging Europe ETFs may not be aware of it, but they love Russia, whether they like it or not. In a cap-weighted landscape, Russia’s gargantuan economy (2010 GDP is estimated at $1.4 trillion) dwarfs its Eastern European neighbors. The two emerging Europe ETFs on the market—the iShares MSCI Emerging Markets Eastern Europe ETF (NYSE Arca: ESR) and the SPDR S&P Emerging Europe ETF (NYSE Arca: GUR)—both offer outsize exposure to Russia: The country gobbles up 63 percent of the SPDR, and more than 72 percent of the iShares fund.
According to popular theory, first-to-market ETFs have distinct competitive advantages in attracting investors over their slower-moving peers. Issuers race to launch funds before their competitors, eager to grab investor attention and take advantage of that early-launch momentum. Those looking for evidence need only consider the gold ETFs: The SPDR Gold ETF (NYSE Arca: GLD) launched in November 2004 and built up over $52 billion in AUM.
Van Eck Global, the New York-based investment manager most known for natural resources investing, lowered expenses—at least until May 1, 2012—on two of its country ETFs, one focused on Indonesia and the other on Poland. The price changes were effective Jan. 26.
The funds and the price cuts are:
“International funds generally have higher net expense ratios than domestic funds but we try to pass on lower expenses to shareholders as we achieve economies of scale,” Jan van Eck, principal at Van Eck, said in a press release.
San Francisco-based iShares market Indonesia ETFs as well. Both the MSCI Poland Investable Market Index Fund (NYSEArca: EPOL) and the MSCI Indonesia Investable Market Index Fund (NYSEArca: EIDO) have annual expense ratios of 0.61 percent, according to iShares’ website.
As of Jan. 27, assets in the four different funds were:
iShares cuts fees on 34 foreign funds, including EEM.
Competition for investing in Eastern Europe just heated up with the iShares launch of a Poland ETF that will join a Van Eck fund rolled out last year.