Emerging Markets and ETFs: What's In a Definition? | ETF Trends

The problem with emerging markets is that eventually, most of them grow up and not everyone agrees on what defines “grown up.” As billions continue to pour into emerging market exchange traded funds (ETFs), it’s becoming more and more urgent to answer the question.

The two leading emerging market ETFs Vanguard Emerging Markets ETF (NYSEArca: VWO) and iShares MSCI Emerging Markets Index (NYSEArca: EEM) are both based on the MSCI Emerging Markets Index, which include Israel, Korea and Taiwan, reports Olivier Ludwig for IndexUniverse. MSCI Barra has stated that Korea and Taiwan will stay in the MSCI Index until mid-2011 and Israel will be removed in late spring. The three countries make up around 25% of the total weighting in VWO and EEM.

EEM has 476 holdings and an expense ratio of 0.72%. VWO has 800 holdings and an expense ratio of 0.27%.

Emerging Global Advisors has based its emerging market ETF, EGA Emerging Global Shares Dow (NYSEArca: EEG), on the Dow Jones Emerging Markets Titans Index, which doesn’t include Israel, Korea and Taiwan. In fact, Emerging Global Advisors has stated that they pride themselves on the pure emerging market exposure contained in their funds. The SPDR S&P Emerging Markets (NYSEArca: GMM), based on the S&P Emerging BMI Index, is another emerging market ETF option that excludes Korea, but it includes Taiwan and Israel.

EEG holds 83 of the largest companies and has an expense ratio of 1.10%. GMM has 508 holdings and an expense ratio of 0.59%. [Indonesia ETF: Destined for Greatness in 2010?]