'Core' ETFs

To better help investors allocate toward essential portfolio holdings, Blackrock’s iShares launched its line of “Core” exchange traded funds late last year. So far, the lower fees and broader market exposure have helped the new core offerings.

The iShares Core S&P 500 ETF (NYSEArca: IVV), previously the iShares S&P 500 Index Fund, has gathered $2.6 billion in new inflows year-to-date, according to IndexUniverse data. In comparison, the SPDR S&P 500 ETF (NYSEArca: SPY), the largest ETF, has gathered $746.7 million so far this year. [Cheaper ‘Core’ iShares ETFs Off to Fast Start]

Both funds try to replicate the price movements of the S&P 500 Index. However, the SPY ETF is a unit investment trust, an older legal structure that prevents the fund from reinvesting dividends, lending out securities or investing in futures. Additionaly, SPY has a 0.09% expense ratio compared to IVV’s 0.07% expense ratio.

iShares also created “core” ETF versions of fund products that the company already offers. For instance, the iShares Core MSCI EAFE ETF (NYSEArca: IEFA) is touted as a “Core international equity” play, compared to the original iShares MSCI EAFE Index Fund (NYSEArca: EFA). Both ETFs track the MSCI EAFE Index, which is based on European, Australasian and Far East stocks.

IEFA, though, is cheaper with a 0.14% expense ratio, whereas EFA has a 0.34% expense ratio. The core IEFA ETF is also more diversified, with 2518 holdings, compared to the 914 components of EFA. Consequently, IEFA has a slightly greater exposure to mid- and small-cap stocks.

Investors have been leaning toward the newer version so far this year, funneling $503.3 million into IEFA while pulling $3.4 million out of EFA.