As the exchange traded fund (ETF) industry grows, the heat is on to provide not only the best product, but also the lowest-cost one. An example of this heated competition is taking place with two large emerging market funds.

In the emerging markets ETF industry, the iShares MSCI Emerging Markets Index (NYSEArca: EEM) is losing ground to its low-cost competitor, the Vanguard Emerging Markets Stock (NYSEArca: VWO), writes Ian Salisbury for The Wall Street Journal. The expense ratio for EEM is 0.72%, whereas VWO is 0.27%.

Since the start of the year, a new infusion of money found its way into emerging market ETFs and Vanguard‘s fund took in $5 billion compared to the more established Barclays iShares‘ $2 billion.

Barclays currently has no plans to reduce expense fees and says short-term investors will favor EEM because of the ETF’s lower trading costs. (Find out what to look for when choosing an ETF here).

The iShares ETF has kept fees high because developing country stocks are difficult to come by and the ETF’s hefty trading volume attracts large investors.

  • iShares MSCI Emerging Markets Index (NYSEArca: EEM): up 60.8% year-to-date


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