Bearish put volume swelled in iShares MSCI Emerging Markets (NYSEArca: EEM) on Thursday with more than 250,000 contracts changing hands. In what is likely related trading, iShares FTSE China 25 (NYSEArca: FXI) puts were active yesterday as well, and we emphasize that China is the largest weighting in EEM at 18.90%.

There has been heavier than average put volume in EEM recently, and despite the fact that global equity markets have fallen in the past several days post the U.S. elections, the fund has managed to attract significant asset inflows during this time frame. [Emerging Market ETFs Outperforming on China Rally]

EEM has now reeled in more than $1 billion via net creation activity in the past few sessions, and Vanguard MSCI Emerging Markets (NYSEArca: VWO) has now lost more than $200 million in net redemptions during this same time frame.

To add to our interest here, we have seen very heavy volume in both EEM and VWO, which suggests a few important points. It would not at all be surprising to see tax related activity (swaps) occurring from one ETF to the other given the time of year (November of the current tax year, and post-election, which from asset advisory standpoints, most managers have “some” opinion on what the future tax situation may look like under the current administration and how it will look post 2012) and the fact that Vanguard recently announced that VWO (along with a bevy of other ETFs under their umbrella) will be terminating their relationship with index provider MSCI and instead moving onto FTSE as well as CRSP indices going forward for their formerly MSCI linked ETF/Index products.

Being that post 2012, EEM and VWO will no longer be “materially identical” or “nearly identical” in terms of both tracking the same MSCI benchmark, the MSCI EM Index, it simply is not surprising that it took a few months for institutional investment managers to digest all of the announced changes, and then therefore determine which direction they want to take going forward in terms of what benchmarks they desire and need to track, via their ETF/Index exposure. Furthermore, and more on an EM note, we have pointed out China’s strong relative performance as of late (China as measured by FXI) +4.23% in the past month versus EEM down 0.46%, and China is the largest single country weighting at 18.90% in MSCI EM).

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