In a month marked by flat U.S. markets, with thin and narrow trading, exchange traded fund investors sought out areas of higher return, targeting emerging market assets over August.
Among the most popular ETF trades, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), the two largest emerging market-related ETFs by assets, were the number one and two picks over August, attracting almost $2.2 billion and $1.7 billion in net inflows, respectively, according to ETF.com.
EEM tries to reflect the performance of the benchmark MSCI Emerging Markets Index while VWO tracks the benchmark FTSE Emerging Markets All Cap China A transition Index.
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There are two major differences between the two emerging market options. First off, MSCI considers South Korea an emerging country while FTSE designates the Asian economy as developed. Consequently, EEM includes a 14.9% tilt toward South Korea while VWO excludes the country. Secondly, the FTSE is currently transitioning toward China A-shares exposure, which will ultimately raise its Chinese equity exposure, while MSCI has so far refrained from mainland A-share inclusion.
Additionally, among the top 10 most popular ETFs by asset inflows for the past month, the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) added $1.2 billion in new assets.
The newer “core” IEMG has a cheaper 0.16% expense ratio, compared to EEM’s 0.69% expense ratio. IEMG covers the IMI version of the MSCI Emerging Markets index, so it will include a broader 99% of the investable emerging market, compared to EEM’s 85%. Consequently, IEMG includes a greater tilt toward small- and mid-cap emerging market stocks.
Meanwhile, investors continued to pile into S&P 500 ETFs, with the Vanguard 500 Index (NYSEArca: VOO) attracting $1.7 billion in net inflows, SPDR S&P 500 ETF (NYSEArca: SPY) bringing in $1.2 billion and iShares Core S&P 500 ETF (NYSEArca: IVV) seeing $890 million in inflows. Th PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech heavy Nasdaq-100 Index, also added $950 million.
While the S&P 500 ended flat for the month of August, the rising inflows into the related ETFs suggests that investors don’t see a top in U.S. stocks anytime soon, or participants may find little else to invest in as the U.S. economy keeps plugging along.