ETF Showdown: Another EM Battle
It has been noted countless times that when it comes to emerging markets ETFs offering multi-country exposure there are two dominant players: The Vanguard MSCI Emerging Markets ETF (NYSE: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSE: EEM).
For a while, this was an intense rivalry, but VWO was able to wrestle the assets under management crown from EEM by virtue of a lower expense ratio. That issue aside, it's difficult to tell the difference between these two popular EM ETFs.
It may also appear difficult for competitors to encroach on the territory controlled by EEM and VWO. Still, there are some worthy rivals out there and two of them square-off in this week's ETF Showdown. So let's see what the Rydex MSCI Emerging Markets Equal-Weight ETF (NYSE: EWEM) and the EGShares GEMS Composite ETF (NYSE: AGEM) have to offer.
The Rydex MSCI Emerging Markets Equal-Weight ETF is home to 515 stocks and an expense ratio of 0.77% while the newer EGShares GEMS Composite ETF is more narrowly focused with just 88 stocks, but also cheaper with an expense ratio of 0.75%.
The Rydex offering devotes about 58% of its weight to China, South Korea, Taiwan and Brazil. That's comparable to the roughly 57% allocation EEM gives to that quartet. On the other hand, AGEM allocates a combined 59% to China, Brazil and Russia. In fact, AGEM offers no exposure to the almost developed markets of South Korea and Taiwan.
EWEM has double-digit weights to five sectors. Those include financials, materials, industrials, and technology, but the really interesting allocation is the second-largest one: Other ETFs. EWEM devotes 14.4% of its weight to other EM ETFs, specifically the WisdomTree India Earnings ETF (NYSE: EPI) and the iShares MSCI Brazil Index Fund (NYSE: EWZ).
AGEM is less diverse at the sector level with energy receiving a weight of over 26%. Financials, materials and telecom also get double-digit weights.
Sector and country diversity would appear to favor EWEM, but the latter has been a problem in recent months. The ETF has tumbled about 20% while AGEM has fallen 16.1%. Combine that difference with a small difference in fees and AGEM's potential to rebound better due to oil and Russia exposure, and we have a clear winner for this week's ETF Showdown.
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