Some exchange traded funds are adept at gathering new assets while some are particularly skilled at keeping the money that comes in. The iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) is both.
In a year in which investors have been favoring international ETFs, IEMG is packing on new assets at a feverish pace. IEMG was the most popular ETF of the first quarter, bringing in $6.6 billion in net inflows so far this year, according to XTF data. Investors may be looking at this cheap EM option as a way to gain access to emerging markets where valuations are much lower than the loftier prices in U.S. markets.
The high inflows into IEMG also reflects the ongoing theme in the fund industry where cheap index-based strategies attract heavy inflows. Specifically, IEMG shows a cheap 0.14% net expense ratio, compared to the more popular iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which has a 0.72% expense ratio.
IEMG “has seen no net redemptions since its launch in October 2012, according to BlackRock. The firm says only one other fund in the U.S. ETF marketplace has gone that long without a net redemption, and that is its own iShares Emerging Markets Small-Cap ETF (EEMS), which last saw a redemption in May 2012,” reports Gerrard Cowan for the Wall Street Journal.
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 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.
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.
“Additionally, emerging markets often have a higher exposure to commodities than more-developed markets, which has allowed them to cash in on the recent rebound in that area. A number of other factors can affect the performance of emerging-markets stocks, according to BlackRock, ranging from macroeconomic forces to the policies of the U.S. government,” according to the Journal.
For more information on the ETF market, visit our ETF performance reports category.