Differences Between the iShares and Vanguard Emerging Markets ETFs

By on October 15, 2009

The emerging markets have been one of the hottest performing sectors so far this year. IndexUniverse.com takes an in-depth look at the differences between the two leading ETFs in the space; the iShares Emerging Markets ETF (EEM) and the Vanguard Emerging Markets ETF (VWO).

VWO uses what is called “full replication” to track its index, meaning it holds all the stocks in its index (MSCI Emerging Markets Index). EEM, by contrast, uses an “optimization” strategy, holding only a subset of those stocks, with the hope that that subset will reflect the index’s broader performance.

The sector and country weightings between the funds are somewhat different. For example, information technology represents 13.6% of VWO as of September 30, 2009, while in EEM it weighs in at 16.1% of that fund. VWO has a 13.5% exposure to South Korea, while EEM has 9.2% of its ETFs assets in that country.

EEM has tracked the index quite closely over the past 3 years, but has underperformed VWO and the index year-to-date.

IndexUniverse.com doesn’t mention that the expense ratio of EEM (0.72%) is substantially higher than VWO (0.27%).



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