Digging Into Emerging Market ETFs

April 16, 2019

[This article appears in our May 2019 issue of ETF Report.]

Emerging markets has been an area under a lot of scrutiny over the last few years. The space has underperformed developed markets in the past 12 months, and many feel that fundamentals indicate it’s due for a turnaround.

The 10 largest ETFs covering the broad emerging markets space range in size from $650 million to $63 billion. The group of 10 is split evenly between smart-beta and plain-vanilla cap-weighted strategies. BlackRock’s iShares unit alone dominates the space, with three funds that have a total of nearly $100 billion in assets under management (AUM).

The cap-weighted funds in the category have largely performed in lockstep for the past five years, but there are some subtle differences—and even more than that, once you expand your view to include the smart-beta offerings and dig into the details.

 

 

Biggest & Cheapest

The Vanguard FTSE Emerging Markets ETF (VWO) is the largest of the funds in this group, with more than $63 billion in AUM. It’s also one of the cheapest, at an expense ratio of 0.14%, on par with the second-largest fund in the space, the $59 billion iShares Core MSCI Emerging Markets ETF (IEMG). However, the SPDR Portfolio Emerging Markets ETF (SPEM) is the cheapest, at 0.11%; it is also the sixth-largest fund in the space, at $2.8 billion in assets.

 

Ticker Fund Exp Ratio Inception AUM # of Holdings 1-Year Net Flows
VWO Vanguard FTSE Emerging Markets ETF 0.14% 4/3/2005 $63.06B 4,138 $1.71B
IEMG iShares Core MSCI Emerging Markets ETF 0.14% 22/10/2012 $58.58B 2,223 $14.76B
EEM iShares MSCI Emerging Markets ETF 0.67% 7/4/2003 $34.28B 958 ($4.12B)
SCHE Schwab Emerging Markets Equity ETF 0.13% 14/1/2010 $5.74B 1,007 $939.9M
EEMV iShares Edge MSCI Min Vol Emerging Markets ETF 0.25% 18/10/2011 $5.64B 314 $1.10B
SPEM SPDR Portfolio Emerging Markets ETF 0.11% 19/3/2007 $2.76B 1,531 $1.15B
GEM Goldman Sachs ActiveBeta Emerging Markets Equity ETF 0.45% 29/9/2015 $1.75B 403 $137.10M
PXH Invesco FTSE RAFI Emerging Markets ETF 0.50% 27/9/2007 $1.29B 357 $254.22M
JHEM John Hancock Multifactor Emerging Markets ETF 0.55% 27/9/2018 $785.40M 579 $749.13M
FEM First Trust Emerging Markets AlphaDEX Fund 0.80% 18/4/2011 $654.23M 151 $94.62M

 

Smallest Of The Big

The most expensive of the top 10 ETFs is the First Trust Emerging Markets AlphaDEX Fund (FEM), at 0.80%, and in keeping with the cost-conscious nature of the ETF investor, FEM is also the smallest fund in the top 10 in terms of assets. The correlation between AUM and cost is not precisely linear, but the deviations can largely be explained.

VWO, for example, has the backing of the powerful Vanguard brand, which more than makes up for the few basis points in cost difference between it and the SPDR Portfolio Emerging Markets ETF (SPEM).

Similarly, the iShares Core MSCI Emerging Markets ETF (IEMG) has not only the strength of the iShares brand attached to it, but also offers wider and deeper coverage of the emerging market space than all in the space but VWO.

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