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Cheaper ‘Core’ iShares ETFs Off to Fast Start


In October of last year iShares debuted IEMG (iShares Core MSCI Emerging Markets, Expense Ratio 0.18%) and IEFA (iShares Core MSCI EAFE, Expense Ratio 0.14%).

The funds are off to a quick start, having raised $1.2 billion and $710 million in assets respectively in this rather short time frame.

IEMG has especially seen a meaningful uptick in trading volume in recent sessions, married with creation activity as well (+$270 mln in past month).

IEMG has notably vaulted to the number three spot in terms of broad EM based funds in terms of assets, behind the mighty VWO (Vanguard FTSE Emerging Markets, Expense Ratio 0.18%) and EEM (iShares MSCI Emerging Markets, Expense Ratio 0.67%). ['Core' iShares ETF Family Gets Solid Reception]

What is special about these funds and how they compare to the mammoth EEM and EFA (iShares MSCI EAFE, Expense Ratio 0.34%)?

The portfolios of IEMG and IEFA are designed to hold more individual securities (IEFA 2,519 versus EFA’s 927, while IEMG 1,636 versus EEM’s 852), which should broaden overall diversification. Also of major note to cost conscious ETF portfolio managers and institutions is the vast difference in expense ratios in the newer funds as compared to their larger and more tenured counterparts.

Notable differences in terms of portfolio composition are also evident, as for example IEMG’s top holding is actually an ETF (INDY (iShares S&P India Nifty 50, Expense Ratio 0.89%), at over 6%, and the fund makes up virtually all of the index’s exposure to India (as opposed to individually listed securities).

EEM in comparison has its highest weighting in Samsung Electronics ordinary shares, (Samsung ranks as the number two holding in IEMG at 3.30%).

It is also important to note that the newer “core” ETFs track the MSCI Emerging Markets Investable Markets Index and the MSCI EAFE Investable Market Index respectively (as opposed to the MSCI EAFE and MSCI EM Indexes proper), and it would benefit all portfolio managers and investors to purvey the fact sheets of IEMG/EEM and IEFA/EFA head to head when making the eventual determination of “best fit.”

We see the possibility that some larger institutions may be slower to adopt IEMG and IEFA and may favor the larger and more established EFA/EEM simply due to live trading data in the “ETFs themselves.” This of course is a problem for IEMG and IEFA that will be cured in time as the measurable data timeframe increases to the highly anticipated three and five year numbers, and so on.

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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