ETF Trends
ETF Trends

It is widely known that lower fees are one of the primary drivers of the exchange traded fund industry’s growth and why so many advisors and investors are departing higher-cost actively managed mutual funds for ETFs.

That sentiment applies to emerging markets ETFs, including the increasingly popular iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG). IEMG was one of the top asset-gathering ETFs last year. In October, BlackRock lowered IEMG’s annual fee to 0.14% from 0.16% as part of a broader range of expense ratio reductions to the iShares core lineup. Year-to-date, only two ETFs have added more than $1.7 billion gained by IEMG.

Although some developing economies have been viewed as vulnerable to Donald Trump’s presidency and there are concerns about the impact of interest rate increases by the Federal Reserves on emerging markets that have to service dollar-denominated debt, some market observers believe emerging equities can perform well again in 2017.

Emerging market assets have already struggled and may be past their lowest point. The EM segment could slowly improve from here with strengthening current account balances, rising commodity prices and better fundamentals.

“IEMG is home to over $20.6 billion in assets under management, a figure that confirms two notions about ETFs. First, investors are embracing passive index funds and ETFs, in part, for lower fees. Second, institutional investors know the role that fees can play in eroding long-term performance and they are flocking to IEMG as well,” reports Investopedia.

IEMG is widely seen as the lower-cost alternative to the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), but interest in the former, which is now home to nearly $21 billion in assets under management, indicates there is plenty of support for the ETF among advisors and institutional investors.

In the past couple of years, investors have increasingly turned to cheaper options to gain long-term exposure to various market segments.

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.

“IEMG tracks the MSCI Emerging Markets Investable Market Index. The ETF’s country weights are similar to what is found in EEM as China, South Korea and Taiwan combine for about 52% of the IEMG’s geographic weight,” notes Investopedia.

For more information on the ETF market, visit our ETF performance reports category.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.