What Investors Are Missing With VWO
The Vanguard MSCI Emerging Markets ETF (NYSE: VWO) is a fund that is not lacking for superlatives. VWO is the largest emerging markets ETF by assets, and is the third-largest U.S.-listed ETF of any kind, trailing only the SPDR S&P 500 (NYSE: SPY) and the SPDR Gold Shares (NYSE: GLD).
VWO is also cheap with an expense ratio of 0.2 percent, allowing the fund to consistently pilfer assets from the rival iShares MSCI Emerging Markets Index Fund (NYSE: EEM). The positive anecdotes do not end there for VWO.
In 2012, VWO has raked in $9 billion in assets under management, making it the best-selling ETF through the end of July. In the past month, VWO is also the leader in terms of new investments, having attracted $1.2 billion in fresh capital, according to ETFTrends.
The bottom line is VWO is large, heavily traded and inexpensive, three traits advisors and investors prize when it comes to ETFs. Conversely, it has been noted the MSCI Emerging Markets Index is flawed, a scenario that implies investors could be doing better with other emerging markets ETF.
Here are a few emerging markets ETFs of different stripes delivering more alpha to investors than VWO (and EEM for that matter.)
WisdomTree Emerging Markets Equity Income Fund (NYSE: DEM) To be fair, DEM has lagged VWO in 2012. Admittedly, this may be stretching things a bit, but DEM is the winner over the past month and over the past five years, it is no competition. DEM is up more than 19 percent while VWO is down 3.1 percent.
DEM has not attracted assets at a pace that rival VWO's, but the fund is by no means anonymous or small. The WisdomTree offering now has over $4.1 billion in AUM compared with $3 billion in February. More importantly, DEM has a distribution yield of 5.25 percent, a number VWO cannot come anywhere close to touching.
Global X FTSE Andean 40 ETF (NYSE: AND) The Global X FTSE Anadean 40 ETF is a case study in how many investors view Latin America. That is they heavily focus on Brazil and Mexico while nearly ignoring the rest of the region. In this case, ignorance of AND has not been bliss, particularly when compared against VWO.
AND devotes its entire weight to Chile, Colombia and Peru. By comparison, that trio does not even combine for four percent of the MSCI Emerging Markets Index's weight. Here is what investors need to know about Chile, Colombia and Peru: All three viewed a politically risky than Brazil. Chile has the backing of a massive sovereign wealth fund if needed.
Chile and Colombia have vibrant banking sectors. Peru is one of the world's largest producers of copper, gold and silver. As far as AND is concerned, the fund has outperformed VWO by nearly 400 basis points this year.
iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSE: EEMV) One of the common complaints about VWO and EEM is that those funds are heavily weighted to South Korea and Taiwan at time when the emerging markets status of those countries has been called into question.
In fairness, it should be acknowledged that the pair combine for nearly 26 of EEMV's weight. That is not holding back the minimum volatility play's performance. Rather, EEMV has been helped by larger weights to the likes of Malaysia, Indonesia and Chile than are found in VWO. Year-to-date, EEMV has outpaced VWO by nearly 400 basis points.
EEMV is only slight more expensive at 0.25 percent per year. In other words, paying an extra five basis points for an additional 400 basis points in alpha is worth it.
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