Vanguard Emerging Market ETF Sees Heavy Outflow

December 5th at 8:52am by John Spence

Vanguard MSCI Emerging Markets (NYSEArca: VWO) has experienced the most redemptions for any ETF the past month with nearly $900 million leaving the fund.

Earlier this year, Vanguard said it plans to drop the fund’s MSCI index and switch to a benchmark managed by FTSE. It’s unclear whether the recent outflows are related to the index switch, or other factors such as investor rotation away from developing markets or year-end tax swaps.

Since the end of October, investors have pulled $886 million from VWO, according to IndexUniverse ETF flow data.

Meanwhile, the iShares MSCI Emerging Markets (NYSEArca: EEM) managed by BlackRock (NYSE: BLK) is the best-selling ETF with inflows of nearly $2.8 billion.

Some fund managers benchmarked to MSCI indices have expressed reservations about the Vanguard index swap, according to a recent Financial Times report. Others are concerned the move may lead to negative tax consequences and costs.

Vanguard points out that its emerging market fund, VWO, offers cost savings for investors and advisors. VWO has an expense ratio of 0.2% compared with 0.67% for the iShares ETF. BlackRock recently launched iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG), which has an expense ratio of 0.18%. [iShares Emerging Market ETF is Top Seller After Vanguard Index Switch]

“We anticipated a certain amount of leakage of assets,” John Woerth, a Vanguard spokesman, said in a Bloomberg report this week. “However, we’re willing to sacrifice short-term cash flow to lower costs for all of our index-fund shareholders.”

Vanguard MSCI Emerging Markets

Full disclosure: Tom Lydon’s clients own EEM and VWO.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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