The widely anticipated iShares suite of core ETFs debuted
today, marking the first overt effort by the world's largest ETF
sponsor to compete with rival Vanguard for the hearts (and
assets) of cost-conscious, buy-and-hold investors.
As was noted when iShares unveiled the 10-ETF core suite,
comprised of four new and six existing funds, the popular iShares
MSCI Emerging Markets Index Fund (NYSE:
EEM
)
will remain as is
.
With an expense ratio of 0.67 percent, EEM lost a battle for
assets to its Vanguard equivalent, but EEM is still popular with
institutions that use the ETF for tactical strategies. In other
words, there was no good reason for iShares to tinker with the
$38.1 billion EEM, but there certainly is a good reason (investor
assets) to introduce a cheaper rival to the Vanguard MSCI
Emerging Markets ETF (NYSE:
VWO
).
That rival debuted Monday in the form of the iShares MSCI Core
Emerging Markets ETF (NYSE: IEMG). With an expense ratio of 0.18
percent, the iShares MSCI Core Emerging Markets ETF slightly
undercuts VWO, which charges 0.2 percent per year. Whether or not
Vanguard responds with a fee cut on VWO remains to be seen, but
that is a legitimate possibility
.
Cost is not the only noticeable difference between EEM and
IEMG. The former is home to 832 stocks. The new funds is home to
nearly 1,600. EEM's top-10 holdings account for 16.2 percent of
the fund's weight, but the top-10 holdings in IEMG represent 20.6
percent of that ETF's weight.
The major differences arguably end there. China, South Korea,
Brazil and Taiwan account just over 53 percent of IEMG's country
weight. That quartet represents about 56 percent of EEM's weight.
Other ETFs are also on prominent display as part of IEMG's lineup
as the iShares MSCI India Index Fund (NYSE:
INDA
), iShares MSCI Chile Investable Market Index Fund (NYSE:
ECH
) and the iShares MSCI India Small Cap Index Fund (BATS: SMIN)
are all found among IEMG's top-20 holdings. In fact, INDA and ECH
are the ETF's largest and third-largest holdings,
respectively.
A potential rub exists with IEMG. That being with the ETF
tracking an index that is not vastly different than the MSCI
Emerging Markets Index, investors trade exposure to higher-flying
developing markets such as Thailand, Turkey and Peru for the
perceived safety of the likes of South Korea and Taiwan.
IEGM's posture as conservatively positioned ETF could bring
about a scenario where investors need to evaluate the new fund's
merits against the likes of the iShares MSCI Emerging Markets
Minimum Volatility Index Fund (NYSE:
EEMV
). Just a year old, EEMV has proven
wildly successful
, accumulating $547.4 million in assets and easily outperforming
EEM and VWO along the way.
Whether or not EEMV and IEGM cannibalize one another remains
to be seen and there is a reasonable chance that will not happen
because the funds are by no means carbon copies of each other.
There is one important factor consider, though. EEMV charges just
0.25 percent per year, so the ETF is not much more expensive than
IEGM or VWO. If EEMV continues its significant outperformance of
EEM and VWO and IEGM cannot rival the low volatility play in
terms of returns, EEMV will merit consideration as a best of
breed multi-country emerging markets ETF. Perhaps it does right
now.
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.
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