Apparently fees matter to ETF investors. The low-cost option from Vanguard for emerging market stocks is the best-selling ETF in 2012.

Investors have pumped $7.4 billion into Vanguard MSCI Emerging Markets (NYSEArca: VWO) this year as of June 30, according to data from the ETF Industry Association. The developing market fund logged inflows of $1 billion last month.

The Vanguard ETF is dominating the head-to-head battle with rival iShares MSCI Emerging Markets (NYSEArca: EEM), which follows the same index. [Emerging Markets Lead ETF Inflows]

VWO undercuts EEM on fees by a wide margin. VWO has an expense ratio of 0.2% while EEM charges 0.67%. [The 10 Best-Selling ETFs of 2012]

VWO holds assets of $50.5 billion versus $33.1 billion in EEM.

The iShares emerging market ETF was first to market, listing in April 2003, followed by VWO in March 2005.

In terms of performance, the emerging market funds are barely positive for 2012 and trailing the S&P 500, although some investors are bullish on developing markets judging by VWO’s massive inflows. It’s not clear whether the buying reflects investors rotating from EEM into the lower-fee VWO.

Earlier this year, Vanguard cut VWO’s expense ratio by 2 basis points to 0.2%.

Year to date, EEM has gathered net inflows of $693 million, according to the ETF Industry Association.

In 2011, investors pulled $8.5 billion from EEM, while VWO recorded net inflows of $5.3 billion last year.

Vanguard MSCI Emerging Markets

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