Low fees have been widely cited as one reason why passively managed index funds and exchange traded funds continuing pilfering assets from pricier actively managed mutual funds. Investors’ preference for low-cost products extends to international ETFs.
Just look at the iShares Core MSCI Emerging Markets ETF (NYSEArca:IEMG), the low-cost answer to the popular iShares MSCI Emerging Markets ETF (NYSEArca:EEM). Year-to-date, only one ETF has added more new assets than the $10.9 billion added by IEMG.
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.
“It took the iShares Core MSCI Emerging Markets ETF, symbol IEMG, four-and-a-half years from its 2012 launch to eclipse its 14-year-old iShares peer and become the second-biggest developing market equity exchange-traded fund,” reports Elena Popina for Bloomberg.
IEMG charges just 0.14% per year, or $14 on a $10,000 investment. That puts the ETF in competition with the Vanguard FTSE Emerging Markets ETF (NYSEArca:VWO) among the least expensive emerging markets ETFs. Conversely, EEM, a favorite of institutional investors, charges 0.72% on an annual basis.
In recent 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.
Related: ETF Managed Portfolios Are Picking Up Pace
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.
“The iShares MSCI Emerging Markets ETF, ticker EEM, peaked at $53 billion in 2013, but it has been slowly ceding ground to the fund’s in-house rival, which has a lower expense ratio and holds more than twice as many stocks. IEMG’s assets now stand at $32.6 billion, compared with $32.4 billion for EEM,” according to Bloomberg.
VWO is the largest emerging markets ETF trading in the U.S. Like IEMG, VWO charges 0.14% per year.
For more information on the ETF market, visit our ETF performance reports category.