One of the most efficient ways to access emerging market countries is through exchange traded funds (ETFs).
The ETF that reigns supreme in assets is iShares MSCI Emerging Markets ETF (EEM) which has garnered $20 billion in assets, and has heavy trading volume. The expense ratio is 0.74%, which can be hefty when compared with that of its competitor, Vanguard Emerging Markets (VWO).
VWO has around $2.13 billion and lower expense ratio of 0.25%. A buy-and-hold investor should take the 0.49% difference into consideration. While those numbers might seem small, over the long-term, fees can cut into returns significantly.
EEM gives the most exposure to Brazil at 16%, then China 14.8%, South Korea 12.2%, and Taiwan 9.3%, while South Africa takes 8.1%. The top three holdings are Gazprom OAO 3.7%, Samsung Electric 3.2%, and Posco ADR 2.8%.
EEM’s best feature is its liquidity. 46.2 million shares trade per day as opposed to 1.6 million for VWO. For investors that deal with large trades, EEM takes the front position, as there is more liquidity and less chance for small discounts to pop up, say insiders.
VWO gives exposure to China at 13.9%, Brazil 13.5%, South Korea 12.9%, Taiwan 11.7%, and India at 7%. The top three holdings are Gazprom 3.7%, China Mobile Ltd 2.8% and Samsung Electronics 1.8%. VWO gives Asia a heavier weighting than EEM, and the exposure to India is a plus.
When it comes down to which one you choose, it’s a matter of deciding where you’d like your exposure and what’s most important to you. Both funds right now are sitting below their 200-day moving averages, so you have awhile to decide.