EEM: Beyond The Bloodbath

February 04, 2011

The bottom seems to have fallen out from under EEM. But it may not matter.

Ever since the Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO) displaced the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) as the world’s biggest emerging markets fund last month, things seem to have gone from bad to worse for iShares.

EEM lost almost $7 billion in assets last month, and the bloodbath extended right into February’s first trading session, as investors pulled $777 million out of the fund on Feb. 1. I’ve got to hand it to you, Matt: You pretty much called it when you said this would happen. But I doubt it matters.

To start, your blog, “How To Save The EEM Franchise,” laid out some useful ideas for investors about the future of emerging market investing that are already near and dear to the folks at iShares.

When I reached out to talk to iShares, they emphasized their family of single-country ETFs, many of which are focused on the emerging markets. In sum, they said they had $87 billion in assets under management focused on the emerging markets. (I wonder if the sum isn’t now closer to $80 billion, given EEM’s bleeding since it was toppled by VWO on Jan. 18.)

Maybe it’s just corporate spin, but I think there is something to the idea that the “EEM vs. VWO” horse race we’ve been all excited about might be yesterday’s news in terms of how investors can access emerging markets in more and more specific ways.

Whether iShares can successfully fend off competitors, including upstarts such as Global X and Emerging Global, really remains to be seen.

Like so much in this world, it comes down to following the money trail. And, the overall picture for iShares is positive. They have a whole lineup of single-country funds that, on the whole, are pulling in assets. Take its iShares MSCI Malaysia Index Fund (NYSEArca: EWM): It expanded by a third in 2010, and this year has crossed the $1 billion threshold. Not too shabby. But it’s not all good news.

For example, the $2.28 billion that EEM hauled in last year was just about wiped out by the $2 billion that came out of the iShares FTSE/Xinhua China 25 Index Fund (NYSEArca: FXI). FXI, a six-year-old fund, still has more than $7 billion in assets. By comparison, the SPDR S&P China ETF (NYSEArca: GXC) you talked up in your year-end blog added almost $90 million in assets last year and is now a $717 million fund.

On the other hand, the iShares MSCI Brazil Index Fund (NYSEArca: EWZ) raked in more than $500 million in new money last year, and it’s already added another $800 million this year, making it an almost $12.5 billion fund. It’s easy to forget EWZ has been around for 10 years, a long time in the ETF industry.


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