New Giant Among Emerging Market ETFs

The once-segment-leader ‘EEM’ is about to move to No. 3 as new money flows elsewhere. 

Reviewed by: Cinthia Murphy
Edited by: Cinthia Murphy

Emerging market ETFs are raking in assets, largely because they are offering attractive value. But in this segment, no ETF has come close to the asset-gathering prowess of the iShares Core MSCI Emerging Markets ETF (IEMG)—the relative “newcomer” among the giants.

Yes, we did see an emerging market ETF pencil in a one-day 15,000%-plus AUM growth last week. That’s unparalleled, to say the least. But the fund had less than $2 million in total assets before one single trade poured $268 million of fresh money into it. Dave Nadig, CEO of, looked into the impressive overnight growth of the PowerShares S&P Emerging Markets Momentum Portfolio (EEMO).

But IEMG tells a broader story of demand for emerging markets; of different client usage; and of the importance of cost in the ETF space.

IEMG Leading Space For Inflows

So far in 2017, IEMG has seen net creations of more than $8.25 billion. That’s more than double the creations seen in the segment’s largest ETF, the Vanguard FTSE Emerging Markets ETF (VWO), which has gathered $3.94 billion year-to-date. And it’s a whopping number compared with the $780 million the in-house competitor iShares MSCI Emerging Markets ETF (EEM) has attracted so far this year.

That asset growth has IEMG now hot on the heels of EEM—once the largest emerging market ETF in the market.

Launched in October 2012, IEMG now has $29 billion in total assets, roughly $1 billion shy of EEM’s $30 billion in assets. EEM launched in 2003.

In a broad sense, the emerging market play this year is a value play. Fundamentals in the region are said to be improving, while political risk remains high in key economies such as Brazil. But from a value perspective, P/E ratios in IEMG and EEM are around 14, while in a U.S. fund such as the iShares Core S&P 500 ETF (IVV), it’s 21.4. Emerging markets are coming off a bottom.

Cost Story Behind Success

But IEMG’s success is specifically also a story of cost. Back in 2012, iShares introduced its “Core” lineup of ETFs with the purpose of competing on cost. IEMG has a net expense ratio of 0.14%. That’s about a fifth of what EEM costs—0.70%, or $70 per $10,000 invested. (VWO also carries a 0.14% expense ratio.)

Today wealth managers and institutional clients who are looking for low-cost ETFs as long-term holdings are increasingly choosing IEMG for their emerging market exposure. It’s mostly new money coming into the ETF fold and different types of clients, according to iShares.

Both EEM and IEMG meet many institutional clients’ MSCI mandates, as both funds track MSCI indices, but EEM remains the uncontested behemoth among the trading crowd. The fund has five times the average daily volume and 100 times the options market that IEMG has, according to iShares data. The table below shows some of these stats: 

Source: iShares


A Lower-Volatility Play

Some investors also look at IEMG as a lower-volatility play on emerging markets relative to EEM.

The fund currently has an equity beta of -0.6, while EEM’s is -0.1, iShares data show. Beta is a measure of how much the portfolios move with the broad market, and negative beta suggests the portfolios are less volatile than the market.

IEMG also has a lower three-year standard deviation than EEM, according to iShares data, meaning its returns are less dispersed from their average than EEM’s—they are less volatile. For these reasons, some investors even consider IEMG a sort of smart-beta take on emerging markets even though the portfolio selects and weights securities based on market capitalization.

From a performance perspective, IEMG and EEM have delivered practically identical results so far this year, both beating the competing VWO. Both IEMG and EEM track MSCI benchmarks that have South Korea as the second-largest country allocation, at about 15%. VWO’s FTSE-linked portfolio, meanwhile, excludes South Korea altogether, so the country allocation is very different.

There’s also a slight difference between IEMG and EEM, in the sense that IEMG is broader in reach than EEM, investing in roughly 1,860 holdings, while EEM owns 814 securities. VWO has the largest portfolio, with more than 3,500 stocks.  

Chart courtesy of

As a whole, this segment has now shelled out more than twice the gains of the SPDR S&P 500 (SPY) year-to-date. It’s a pocket of the equity universe that’s attracting investor interest due to value and performance.

But it’s also a pocket of the market that’s reminding us that investors are increasingly aware they have choices, and low-cost, efficient ETF structures have the upper hand.

Contact Cinthia Murphy at [email protected]


Cinthia Murphy is head of digital experience, advocating for the user in all that does. She previously served as managing editor and writer for, specializing in ETF content and multimedia. Cinthia’s experience includes time at Dow Jones and former BridgeNews, covering commodity futures markets in Chicago and Brazil equities in Sao Paulo. She has a bachelor’s degree in journalism from the University of Missouri-Columbia.