Emerging market ETFs have been attracting billions of dollars in inflows over the past month, but one fund has been conspicuously left out.
According to FacSet data, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) has experienced neither inflows nor outflows since September 6, reports Asjylyn Loder for the Wall Street Journal.
Meanwhile, the competing Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) attracted $1.2 billion in the past month and the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) gathered $906 million in inflows.
Investors likely ignored EEM in favor of VWO and IEMG due to costs. While the three ETFs all track the broad emerging markets, VWO comes with a cheap 0.15% expense ratio and IEMG has a 0.14% expense ratio, but EEM trades with a costly 0.69% expense ratio. The cheaper fees help long-term investors gain an edge over costlier products.
[related_stories]In the past couple of years, investors have increasingly turned to cheaper options to gain long-term exposure to various market segments. For instance, over the past three years, IEMG has added $15 billion, whereas the older and costlier EEM has experienced $7.7 billion in outflows.
Nevertheless, EEM is still a relevant investment as its vast liquidity and tight bid/ask spreads attract large institutional traders whom care more about executing large bets quickly than the long-term cost of holding the fund.
“EEM tends to be used more by institutional investors that favor MSCI indices and are focused more on liquidity,” Todd Rosenbluth, director of ETF research for CFRA, told the Wall Street Journal. “BlackRock launched the lower-cost Core ETF as a defensive move because money was flowing out of their EEM fund and into Vanguard’s emerging market ETF.”
SEE MORE: Emerging Market ETF Investments Were a Big Theme in August
According to Morningstar data, EEM shows an average daily volume of 68.4 million shares, compared to VWO’s average of 17.6 million shares and IEMG’s 6.0 million.
“Just because you don’t see inflows or outflows doesn’t mean investors aren’t using the product,” Melissa Garville, a spokeswoman for BlackRock Inc., the issuer of the iShares suite of ETFs, told the Wall Street Journal. “There’s still trading volume.”
Moreover, EEM’s lack of flows may reflect investors’ waning interest in emerging market investments after the recent rally. Flows to emerging market funds are “solid, but slowing,” according to the Institute of International Finance.
For more information on ETF flows, visit our ETF performance reports category.