2. Country and sector weightings significantly different
EEMV’s top 10 securities each weigh about 1.5%, and China is the portfolio’s biggest country allocation, at 18.3%, followed by Taiwan at 17% and South Korea at 12%. So far in 2016, China is one of the worst-performing stock markets globally, with Shanghai stocks down about 20% and Hong Kong stocks down about 8%.
EELV holds Taiwan as its biggest allocation, at 20% of the portfolio. Taiwan equities, too, are marginally lower in 2016, but only marginally. EELV’s two other top country allocations—Malaysia at 14% and Mexico at 11%—are both markets that are in the positive year-to-date.
In EELV, China is the smallest country allocations, at only 3.5%.
From a sector perspective, EELV is heavily tilted toward financials at a third of the portfolio—33%. Consumer staples comes in second, at 13%.
iShares’ EEMV also has financials at the top, but only at 26%, followed by information technology at 15% and telecommunications at 12%.
For comparison, the broad MSCI EM Index—representing the broad emerging market equity segment—holds financials at about 27%, followed by info tech at 20% and consumer discretionary at about 10%.
3. Costs similar, but not really
EEMV costs a net of 0.25% in expense ratio thanks to fee waivers totaling 0.45%. That means, according to the prospectus, the fund actually costs 0.70% but iShares has instituted a waiver, so investors pay only 0.25% for the time being.
EELV costs a similar 0.29% in net expense ratio, or $29 per $10,000 invested.
The key difference here is that EEMV, with $3.3 billion in total assets, traded on average some $39 million a day with an average spread of only 0.04%. That puts the fund’s total cost of ownership at 0.29%.
EELV, meanwhile, has only $175 million in assets, trading on average just under $2 million a day at an average spread of 0.24%. That puts this fund’s total cost of ownership at about $53 per $10,000 invested.
4. Selection & weighting methodologies
EELV uses a plain-vanilla selection process and weights its securities based on volatility, focusing on the least volatile stocks in the segment. The underlying benchmark focuses on the net return of the securities, looking for those with the lowest up-and-down price fluctuations—or volatility.
The mix is rebalanced and reconstituted quarterly.
EEMV uses a more multifactor selection and weighting approach to offer the absolute lowest risk relative to the broader MSCI EM index. Its focus on volatility also includes single security, country and sector constraints. The mix is rebalanced semiannually.
Looking Under The Hood
We often are reminded of the importance of knowing what you own. Here, both EEMV and EELV do a good job at offering lower-volatility takes on emerging market equities of 20-plus countries.
“While the two funds fall into the same segment, they have somewhat different construction methodologies and Fit characteristics that might explain the deviations,” Stephen Vasend, ETF analyst with FactSet, said.
“Historically, these funds have had differences in performance of about 2%, so it isn’t just a year-to-date divergence,” he added.
Understanding what can set their return streams apart from time to time can help you decide which ETF best fits your needs, and which one better aligns with your long-term goals.
Contact Cinthia Murphy at [email protected].